Age matters when it comes to saving for retirement on the job

A new report shows that workers’ participation in employer-sponsored retirement plans varies across the generations, with older workers being the more diligent savers as well as having more opportunities to do so.

The Pew Charitable Trusts’ chartbook, “Retirement Plan Access and Participation Across Generations: How younger workers in the private sector differ from older colleagues,” is based on U.S. Census data. In addition to exploring participation rates, the study also looks at key reasons for those differences, while exploring why workers choose not to participate.

Among the key findings:

▪  The older a worker gets, the more likely he is to participate in a private-sector retirement plan. Millennials have the lowest rates and baby boomers the highest. In 2012, 31 percent of millennials participated in a work-sponsored program, which is defined as a pension or a defined contribution plan, such as a 401(k). That percentage shot up to about 50 percent for Gen Xers and 56 percent for baby boomers. The rate of participation increased more dramatically when analysts looked only at defined contribution plans (without pensions): 25 percent for millennials, 40 percent for Gen Xers and 43 percent for boomers.

▪  Older workers also have more access to plans. There are different reasons for this. Older workers tend to have higher-paid jobs that are more likely to offer retirement benefits. They may also be more likely to stay in jobs long enough to become eligible for workplace plans.

Overall, about 35 percent of workers do not have access to a defined contribution plan. But when divided according to generation, accessibility is much lower for millennials. Forty-one percent of millennials have no access to either type of plan (pension or 401k) through their employers, compared with 35 percent of Gen Xers and 30 percent of baby boomers. In fact, millennials were most likely to cite ineligibility as the reason for not participating, while Gen Xers pointed to affordability. Baby boomers cited problems with eligibility and affordability

▪  Even when retirement plans ware offered, millennials were least likely to use them. Fifty-two percent of these younger workers took advantage of defined contribution plans compared with 75 percent of Gen Xers and 80 percent of baby boomers. “Millennials are just starting out in their careers and are likely to earn less, as well as to have unsecured debt,” the report concluded.

▪  Employer matches to employee contributions is a big inducement for all age groups. “When an employer contributes, about 85 percent of all workers 22 and older and eligible to participate join the plan, compared with 69 percent of workers who take up the plan when the employer does not contribute,” the report states. “Takeup rates rose 15 to 16 percentage points across generations when employers matched worker contributions.”

Understanding participation rate among the generations is important because people do most of their retirement savings through their jobs.

This story was originally published February 15, 2017 at 11:24 AM with the headline "Age matters when it comes to saving for retirement on the job."