Millennial Workers Not Saving Enough to Get Company Matching Contributions

Participation in 401(k) plans is strong among workers in their 20s and 30s, but many are not saving enough to take full advantage of their employer’s 401(k) match – potentially leaving thousands of dollars on the table and hurting their long-term financial health, according to a study by Aon Hewitt. While the average participation rate of young Millennial workers (age 20 to 29) is 73%- and 77% for older Millennials (age 30-39), many are saving at a low rate. Nearly 40% of 20 to 29 year olds and 31% of 30 to 39 year olds are saving at a level that is below the company match threshold.

Rob Austin, director of Retirement Research at Aon Hewitt said, “Automatic enrollment has significantly improved participation in 401(k) plans for all employees over the past 10 years—but even more so for young workers. However, once they’re in the plan, young workers seem to fall victim to inertia with many continuing to save only at the default rate, or slightly above, and risking their long-term savings by not receiving the full employer matching contributions that are offered.”

Leaving matching contributions on the table can cost young workers a significant amount of long-term savings. Consider a 25-year old worker who makes $30,000 annually and works for an employer that provides the typically company match – $1-for-$1 up to 6 percent. If that 25-year old starts saving the full match amount of 6% immediately upon employment and continues to do so until she reaches age 65, she’ll have more than $950,000 saved in her 401(k).  If that same worker waits until age 30 to begin saving 6%, she will have less than $715,000 saved at age 65. Five years of missed 401(K) contributions will cost the employee her $225,000 over her career. In order to make up the gap, she would need to increase her savings by 4% percent and start saving 10% of pay each year for the next 35 years.

“For young workers, it may seem insignificant to increase 401(k) contributions by a few percentage points, particularly at a point in their career and life when they’re likely earning a smaller salary, but the long-term effects can be remarkable,” explained Austin. “Employers can help Millennials improve their financial outlook by encouraging them to save at least at the match threshold through targeted communications and online tools and resources. To take it a step further, they can also increase the default contributions so that workers are saving at the match threshold immediately upon enrollment into the plan, or by offering automatic contribution escalation, which increases a workers’ contribution rate over time. The bottom line is young workers need to save more, starting now.” For more information, visit www.aonhewitt.com.

Last Updated 10/20/2021

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