Millennials are more retirement-ready than their parents (thanks to auto-enrollment)
More than one-third of millennials, who’ve benefitted from auto-enrollment and auto-escalation, believe they won’t get a dime of Social Security when they retire, so they’re taking matters into their own hands.
Millennials worried about their retirement preparedness and the overall future of their finances can take solace knowing they are on track to retire in a comfortable financial position.
A Creditnews analysis of Vanguard data revealed of all generational cohorts, older millennials (those between 37-41) are most likely to generate enough income to retire comfortably. Retirement readiness was calculated using Vanguard’s sustainable replacement rate, a figure that represents the percentage of pre-retirement income an individual needs to maintain their current lifestyle while in retirement.
One of the main reasons millennials have successfully grown their nest eggs is that they tend to be active in workplace retirement plans. According to Fu Tan, Vanguard’s Senior Investment Strategist, workers who engage with contribution plans have a brighter retirement outlook.
“In the past two decades, these workers have benefited from innovations such as automatic enrollment, automatic escalation of savings rates over time, and automatic investment in a mix of stocks and bonds consistent with a retirement goal,” she said.
With millions of baby boomers scheduled to start receiving Social Security in the coming decade, many younger Americans worry there won’t be enough benefits for them by the time they retire. These attitudes were solidified in a new survey from Nationwide and Harris Poll, which found that 39% of millennials and 45% of Gen Z believe they won’t receive a dime of Social Security.
Related: Across the generations, who is most (least) prepared for retirement?
Despite the rosy outlook for millennials, experts warn that the gap between what people have saved and what they’ll need in retirement will likely grow over time—especially if expected cuts to Social Security benefits materialize. Many Americans deeply underestimate the impact of health care costs on their retirement. Nearly 95% of people 65 or older suffer from at least one chronic condition, according to the National Council on Aging. Conditions and treatment take a bite out of retirement savings as healthcare costs continue to rise.
“It is incredibly hard for people to wrap their heads around what could happen to their health 10, 20 or more years into retirement,” said Jean Statler, CEO of Alliance for Lifetime Income.