Americans lag in retirement savings, but Millennials are leading the way

Some 55 percent of American workers aren't saving enough money to ensure financial security during retirement, according to one study. The nation's youngest workers, at least, appear to be getting the message.

First Look

American workers are increasingly putting more money away for retirement, with Millennials far outpacing other age groups in improving their retirement savings.

That’s a key conclusion from a new Fidelity Investments survey released on Thursday.

Despite being the youngest group of workers, Millennials aged 25 to 34 are storing away an average of 7.5 percent of their income for retirement, including any match pay they get from an employer. These younger workers had the largest increase of any age group, up from 5.8 percent two years ago.

However, Baby Boomers, or those aged 51 to 69, saved the most of any group. They typically set aside 9.7 percent of their pay for retirement, compared to 8.1 percent in 2013, the survey found.

Overall, Fidelity found workers’ decisions to save more and invest wisely – or enroll in a retirement plan that does so – has had a positive impact.

The company, which manages retirement accounts, recommends saving 15 percent of your pay for your post-work years, and more if you hadn’t begun saving at an early age.

The number of workers who will be able to afford at least their "essential retirement expenses" – which the company pegs at 80 percent of vital needs including housing, healthcare, and food – has jumped seven percentage points to 45 percent of workers.

But, Fidelity notes, that still leaves 55 percent of workers with the potential of not meeting those costs once they retire.

Ways to combat that growing concern for many workers include saving more, especially as you get closer to retirement; deciding to work longer to increase your retirement benefits; and maintaining an investment portfolio that is neither too aggressive nor too conservative depending on your age.

“Even in the midst of unsteady market conditions and pockets of global instability, it’s extremely encouraging that so many people have taken positive steps to improve their ability to live comfortably in retirement, with many saving more, spending less and making smart investment decisions,” says John Sweeney, executive vice president of retirement and investment Strategies at Fidelity, in a statement.

Overall, Mr. Sweeney told the Associated Press, as the economy slowly improves, workers are feeling more comfortable with their jobs and their finances and the unemployment rate is at its lowest point since 2008.

Some workers may be benefitting from 401(k)s and other retirement plans as well. Some work-sponsored plans automatically enroll employees and increase the amount they save each year, the AP reports.

Such plans have a particular benefit for younger workers, as they can put retirement contributions into a so-called target-date mutual fund. A target-date fund controls how much of a plan is invested in stocks – traditionally high-risk but also higher-reward as opposed to bonds, a more conservative choice that offers a smaller long-term return on an investment.

But in addition to saving more over a longer period, older workers are more prepared for retirement because they may still have the opportunity to benefit from a pension, a benefit rapidly disappearing from many workplaces, including for city and state workers.

Older workers also may have a more realistic picture of what it takes to retire than younger workers, Sweeney told the AP.

“The further you are from retirement, the more you still hold aspirations of retiring early," Sweeney said. “Boomers are saying it may make sense to continue to work and extend that retirement date from 62 to 65 or 67.”

This report contains material from the Associated Press.