Millennials who are saving money in company 401(k) plans are
saving a median 6% of their income, according to a new survey by asset manager T.
Rowe Price Group TROW -0.08%. That figure for workers ages 18 through
33 isn’t far behind the median 7% for the total of more than 3,000 401(k)
savers who were surveyed and the median 8% for baby boomers, the group closest
to retirement. Moreover, 40% of the millennials at an employer for a year or
longer said their percentage contribution went up in the last year.
While millennials are sometimes described as financially
illiterate, “they are trying to do the right thing” in saving for retirement,
says Judith Ward, a senior financial planner with T. Rowe Price who spoke at a
meeting with reporters on Wednesday. Well, maybe. But this generation has also
gotten a strong shove in that direction, which Ms. Ward and colleagues at T.
Rowe Price say is a good thing.
Many companies automatically enroll new employees in a
workplace retirement plan, typically defaulting them into a diversified
target-date mutual fund based on their age. A small number of plans—perhaps
around 15% –provide for the percentage contribution to automatically escalate
each year.
Workers can override these defaults, but rarely do, notes
Jerome Clark, who manages T. Rowe Price’s target retirement funds. So these
automatic features use workers’ inertia “to their benefit,” by getting them
saving in a diversified portfolio.
T. Rowe Price has looked at the millennials in the 401(k)s
it oversees who have been automatically enrolled, typically in target-date
funds. Of them, 90% own only that single fund in their account, Ms. Ward says. With the push toward all-in-one funds, Ms.
Ward says plans are “saving [workers] from themselves” and potentially poor
asset-allocation decisions. Seventy-seven percent of millennials whose T. Rowe
Price plans include automatic increases in contributions stick with the
increases rather than opting out, she says.
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