Generation Y is stepping up to the challenge of retirement savings. Those who were lucky enough to find full-time jobs during the Great Recession have started saving early, with 83 percent contributing to a 401(k) plan, according to June 2012 data from Fidelity.
This is up 8 percent compared to people who were a similar age 10 years ago. Not only are they saving, they are contributing more than past generations. The average savings plan balance for this generation has increased from $2,900 to $59,200 for participants who have continually contributed for the past 10 years, the study found.
Seventy-three percent of that asset growth was from employee contributions, which shows the importance of saving early and consistently.
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Generation Y, which were born between 1979 and 1991, will be the first generation to have 401(k) accounts available for their entire working career, giving them more time to reach their goals.
They also can take advantage of auto enrollment and auto escalation, target date funds and managed accounts, which were not available to prior generations.
Fidelity's data shows that nearly 50 percent of Gen Y has auto-enrolled in a workplace savings plan.
Fidelity recommends that employers build a "culture of savings, one that encourages good savings habits and shows the positive outcomes those behaviors can lead to."
Providing more education for employees and allowing them to speak with investment professionals will help them plan for their futures.
This younger generation needs to understand the options that are out there, including Roth 401(k) plans which grow tax free. According to Fidelity data, 8.8 percent of Millennials are now taking advantage of this savings option. Fifty-four percent of plan sponsors offer a Roth option.
The report also recommends that Millennials not cash out of their small retirement savings accounts when they leave a job. They recommend consolidating them under one umbrella, especially if many of their small accounts are held by the same company, like Fidelity.
Millennials who have taken advantage of guidance have increased their average deferral rate from 4.5 percent to 8.7 percent, a move Fidelity estimates will increase retirement savings for this group by $26 million annually.
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