How Millennials With Kids May Become the Richest Retirees Yet


Millennials have gotten a bad rap when it comes to financial responsibility. It has been widely reported that the rising generation is behind on financial milestones like home buying, having kids, and earning income. But at least one group of millennials is breaking the stereotype when it comes to retirement savings. According to a 2017 survey by NerdWallet that polled employed people, millennials (ages 18–34) who have children outpace the retirement savings rate of baby boomer parents (ages 55+) and of Generation X parents (ages 35–54).

Employed millennial parents report that they are saving about 10 percent of their income — that’s more than Gen X parents and baby boomer parents, who are saving around 8 and 5 percent, respectively. It’s also in line with the recommendations by many experts to save 10 to 15 percent of your annual income for retirement.

Across all generations, parents are considered more retirement ready than non-parents. Among survey participants saving for retirement, 84 percent of parents say they’re contributing a portion of their salary to retirement, compared to 69 percent of non-parents. The study’s authors don’t delve into why, but it could be that having children focuses one’s mind on all kinds of savings for the future, despite the added burden of child-rearing costs.

The wonder of compound interest

To be fair, millennials generally earn less money than their parents, making it much easier to save a larger percentage of their income. Still, younger parents are pulling out all the stops when it comes to prioritizing saving. NerdWallet says the millennial parents’ higher savings rate could help them retire more than $1 million richer than baby boomer parents, and $400,000 richer than Gen X parents.

Here’s why. Although the difference between the 10, 8, and 5 percent being saved by the various generations of parents doesn’t seem like much, even small differences can make a large impact over time.

For example, take two people earning $40,000 per year. Person A saves 10 percent ($4,000) of their income while person B saves 7 percent ($2,800) of their income per year. If those annual contribution levels remain consistent over 30 years, assuming a moderate 5 percent return, person A will have over $265,000 saved up while person B will have only $186,000 in the bank. That’s not taking into account any salary increases.

You can see that a few percentage points can make all the difference when it comes to saving. The time value of money is a great motivator to make small budget adjustments in order to save more. (See also: 10 Signs You Aren't Saving Enough for Retirement)

Making sacrifices

In the 2,000 person survey, millennial parents reported making more sacrifices to accomplish their savings goals. In fact, 76 percent of millennial parents report doing so to make room for a higher savings rate, compared to 69 percent of Gen X parents and 60 percent of baby boomer parents. The most common sacrifices mentioned were dining out, vacations, entertainment, bigger homes, buying a car, pursuing more education, and even having more kids.

These small lifestyle changes, when added up, can make a large impact on a person’s savings rate. In fact, the survey reports that 38 percent of employed millennial parents are saving more than 15 percent of their income while only 24 percent of Gen X parents and 23 percent of baby boomer parents report saving that same percentage of their income.

Life-changing adjustments

Millennial parents are also saving more than their Gen X and baby boomer counterparts after major life changes like getting higher paying jobs, getting married, having a child, dropping the day care bill, or buying a house. When a large windfall comes or a significant amount of money is freed up, millennials seem to be good at directing these funds to places where they will grow, like a savings or retirement account.

If we use the example above, with person A already putting away $4,000 per year and then saving an additional $100 per month, the total savings yield is $345,000 versus $265,000 over 30 years. Saving an additional $100 per month, perhaps because day care is done or a raise is received, is well within reach for not only millennials, but also for the average person or family.

Auto enrollment

Millennials’ ability to save more than other generations might have to do more with technology and automation than discipline and financial savvy. According to a 2017 report on retirement and benefits plans, more employers are incorporating auto-enrollment into their compensation plans, and millennials are direct beneficiaries of this change. Eighty-two percent of millennials are currently enrolled in a retirement savings vehicle compared to 77 percent of Gen Xers and 75 percent of baby boomers.

This same report found that 97 percent of people who are automatically enrolled in employer-sponsored savings plans don’t opt out. Again, just saving a few dollars each pay period can make a significant impact on how much a person can save over time. (See also: 5 Ways to Automate Your Finances)

How can you join the ranks of millennial super savers?

Millennial or not, and parent or not, it’s never too late to start saving for retirement. You can make small changes to your money habits that could have a large impact down the line. Here are a few things to try in order to jump-start your savings habits:

  • Automate your savings so you get used to living on less.

  • Have a plan in place ahead of time for using extra income to save more for retirement.

  • Create a budget to find extra income by either cutting expenses, earning more, or both. Use the extra money to pad your retirement savings.

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