Millennials don’t save for enough retirement, but Congress can help – Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

MIT Sloan Senior Lecturer Robert Pozen

From The Hill

“Young people are not saving enough.”

“They will have to double their savings to retire at a reasonable age.”

These quotes represent the conventional wisdom about our nation’s millennials, the more than 80 million Americans between the ages of 20 and 36. However, the savings picture for millennials has become more complex, according to recent data. This cohort of young people is saving more, though for short-term goals instead of retirement.

To promote retirement savings, Congress should pass the Automatic Individual Retirement Account (IRA) Act, legislation that was introduced in the House in 2015, for millennials and other Americans without a retirement plan at their workplace.

Millennials, especially the younger ones, are now building up their savings to cover emergencies for the first time since the financial crisis. More than 30 percent of Americans ages 18 to 26 have saved enough to cover three to five months of living expenses, according to a survey conducted earlier this year by Princeton Survey Research Associates International.

A spokesman for, the survey’s sponsor, explained, “Millennials have a savings discipline that the preceding generations lacked.” Despite much lower levels of earnings, millennials save on average 19 percent of their annual income, compared to 14 percent for both generation X (those in their late 30s to early 50s) and baby boomers (those in their late 50s to late 60s).

Similarly, millennials start buying mutual funds earlier than preceding generations, according to the Investment Company Institute. The median age for millennials buying their first mutual fund is 23, compared to 26 for generation X and 32 to 35 for baby boomers.

Yet millennials have a shorter time horizon for their savings’ objectives than preceding generations, according to the recent report by Merrill Lynch. Sixty-three percent of millennials are saving to achieve their desired lifestyle, such as travel or fitness. Only 37 percent are saving to leave the workforce. By contrast, 45 percent of both generation X and baby boomers are saving to support their lifestyle objectives. Fifty-five percent of these two groups are saving to support themselves when they retire.

These more immediate savings goals for millennials are readily understandable. Retirement probably seems like a far-off dream to a 27-year-old starting to climb in his or her career, while it seems like an imminent reality to a worker at ages 47 or 57.

Read the full post at The Hill.

Robert Pozen is a Senior Lecturer at the MIT Sloan School of Management and a Senior Fellow at the Brookings Institution.

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