COLUMBIA, Mo. — How’s your retirement shaping up? If you’re a millennial, chances are, not so swell. A new study finds that only a third of millennials even have a retirement account set up — with many demographics faring even worse.
Researchers at the University of Missouri recently looked at data from a 2013 survey conducted by the Federal Reserve, hoping to learn more about the savings habits of millennials. The sample used by the researchers only included millennials who were eligible to contribute to a defined-contribution plan, an ability conferred by work experience.
According to the data, only 37 percent of working millennials have an active retirement savings account. This figure was yet smaller among those self-employed and uneducated, who may be limited by both time and income. Time is still on millennials’ side, but maybe not too much longer.
“While it could be assumed that millennials have plenty of time to save for retirement, they have to shoulder more responsibility than their parents and grandparents to do so,” explains Rui Yao, the study’s co-author, in a university release. “Compared to older generations, millennials are less likely to have employer-provided pension or defined benefit retirement plans. Additionally, there is increased uncertainty about Social Security, and millennials are likely to live longer.”
To be clear, having a retirement account is not the same as holding ample savings. On this metric, minorities often struggled — black millennials’ account balances trailed their white peers by 53 percent on average. This was the case after controlling for other financial variables, such as income and debt.
The authors intend to further explore why certain demographics have saved more for retirement than others. It is possible, Yao concedes, that many millennials have stored their savings in other investment vehicles.
Nonetheless, her team’s findings suggest that most millennials could use some work at money management.
“The results suggest that financial education about saving for retirement is absolutely necessary,” Yao says.
“With the decline of defined benefit plans, millennials need to know much more about investing for retirement than their parents or grandparents did,” she adds. “Proper retirement preparation requires strategic and disciplined savings. Given that retirement accounts require the amount to compound, opening a retirement account early in one’s career is the best first step for effectively saving for retirement.”
So, millennials: consider foregoing your next big purchase, and putting it toward your IRA instead.
Yao et al. published their findings on December 1, 2017 in the Family and Consumer Sciences Research Journal.