March 1, 2016

Millenials Don't Save For Retirement, Which is Nothing New Really, Except They Do save...

Have you heard that Millenials don't save enough?     OK then did you later hear that they in fact do save?   Did you further hear that they save more than anyone else?   Kids these days...

I recall seeing this topic in vaguely remembered news story headlines or reported via hearsay on the internet.   Its declared : Millenials don't save!       Then its rebutted :  Yes they do!

I did a google search and found some articles :

Younger Generation Faces a Savings Deficit  (Nov. 2014)
This one talks about the millenials having a -2% savings rate.  

‘Irresponsible’ Millennials Saving More Than Almost Every Other Group (Feb 2015)
Reported "least 56 percent of millennials reported saving at least 5 percent of their income last year, compared to 52 percent of Americans overall"

Why Millennials Are Saving at a Younger Age Than Any Other Generation (Nov 2015)
which reported that "millennials began saving at a median age of 22, Gen X at 27, and boomers at 35"

More than half of millennials have less than $1,000 (Dec 2015)
Sounds bad but then they point out that most age groups are in the same boat mostly.

Millennials Are Outpacing Everyone in Retirement Savings (Jan 2016)
Points out that the kids increased their savings rates "The typical 20-something is now stashing away 7.5% of income vs. just 5.8% in 2013." while other generations didn't.

These all muddy the picture by talking about different things.   How much do they save.  When do they start saving?   What is their "savings rate"?    etc.

Lets look at some hard data from the ERBI.
Retirement Plan Participation: Survey of Income and Program Participation (SIPP) Data, 2012,
Take a look at Figure 3 from that document.

I'll summarize.   From 1988 to 2012 :

21-30 year olds saved 33-39%
31-40 year olds saved 51-57%
41-64 year olds saved ~60%

Participation in 401k plans by age group has been fairly consistent for ~25 years.   Fewer young people save and more old people save.  

Now look at figure 4 on the same report.  It breaks down savings rates by income level.  

75-80% of people who make over $50k saved.
14-21% of people making $5-10k saved.

Now lets look at the report 401(k) Plan Participants: Characteristics, Contributions, and Account Activity

They say the most frequently cited reason for NOT participating in a retirement plan was :
"No extra money to save"

Ok so lets add this all up...

Young people save at the lowest rate.  
This really hasn't changed much at all in the past 25 years.  
Savings rates are directly and clearly related to income levels.
The biggest reason people don't save is lack of money to save.
Young people make less money than older people (on average).

Nothing to see here folks.

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