28 Dec In terms of retirement savings, Millennials outperform Baby Boomers

Indeed, Millennials are proving to be more adept at retirement savings compared to Baby Boomers, challenging the misconceptions that have surrounded the younger generation. Born between 1981 and 1996, Unfair criticism of Millennials concerning their work ethic and financial acumen have persisted, but these stereotypes are gradually being debunked.

While Generation Z is taking the spotlight, engaging in activities that may baffle the older generation, Millennials are quietly defying expectations. Recent data highlights Millennials’ superior performance in retirement savings when compared to their Baby Boomer counterparts.

The research examined pre-retirement income and savings across various income levels, assessing the amount needed for households to retire comfortably. Surprisingly, Millennials demonstrated a higher likelihood of achieving comfortable retirements at every income level, except for the lowest quartile. Within the lowest income bracket, both Millennials and Baby Boomers were discovered to be equally progressing toward their retirement goals.

The divergence between the two generations becomes more pronounced at higher income levels. For instance, Millennials at or above the 95th percentile for income were 22 percent ahead of their high-earning Baby Boomer counterparts in surpassing the calculated sustainable replacement rate. This rate is characterized as the maximum level of consumption, expressed as a percentage of pre-retirement income, that can be maintained in 90 percent of scenarios involving market returns and mortality. The lighthearted reference to “mortality scenarios” injects a touch of humor into conversations about retirement planning.

Notably, Generation X also outperformed Baby Boomers in retirement savings at every income level, except the lowest, where they were only slightly behind. Despite Generation X’s commendable performance, At nearly every income level, Millennials surpassed them by a significant margin.

While it might be tempting to attribute Millennials’ financial prudence to their resilience in the face of economic challenges, much credit goes to policy changes. Automation of enrollment and contributions to 401(k) plans by employers has played a crucial role. The research highlights that automatic retirement account enrollment leads to a 91 percent participation rate, a stark contrast to the mere 28 percent participation when savers need to opt-in to a retirement savings plan. Millennials have enjoyed an advantage due to the widespread adoption of automatic enrollment as the default setting, giving them more exposure to a labor market where this approach is standard practice.

In essence, even if Millennials achieved their retirement savings success by simply maintaining the default settings, they deserve recognition. With the market performing well and December traditionally being a favorable month for stocks, Millennials have enjoyed an advantage due to the widespread adoption of automatic enrollment as the default setting, giving them more exposure to a labor market where this approach is standard practice.