On a Holiday Spending Spree? Younger Generations Aren’t Saving Enough for Retirement, But You Can Turn Things Around

Maybe December isn’t the time when most of us are balancing our budgets. And carefully making sure we’re putting enough money aside for retirement. But, the new year is fast approaching, and once those New Year’s resolutions hit, a lot of people will (maybe reluctantly) turn their attention back to their finances. But not everyone will do that – and not everyone who does do it will like what they see. 


According to recent studies, Millennials and Gen Zers – the youngest workers among us – aren’t saving enough for retirement, and many don’t even see the point of trying. Are you in either of these boats, or are you seeing a loved one go through it? It can seem scary, but it’s never too late to turn things around!woman in a santa hat holding a piggy bank with article title next to her

The Savings Gap

According to a report released this past summer by Vanguard, an investment firm that represents more than 30 million investors. The younger generation of workers simply aren’t keeping up when it comes to saving for retirement. The report reveals that Millennial and Gen Z employees under 35 currently have an average of $37,211 and $6,264, respectively, saved in their 401(k) retirement plans. On the other hand, workers just 10 years older have an average of over $97,000. And workers 45-54 have an average of almost $180,000.


And things look even worse when we look at the median amount saved, as opposed to the average amount. Which most experts say is a better representation of how much most people have saved in their 401(k) accounts. When we look at the median amounts saved, those 25-34 have less than $15,000. While those 35-44 and 45-54 have over $36,000 and $61,000, respectively. And workers under 25? They have only saved a media amount of less than $2,000.


Comparing people who’ve been saving for longer than younger workers might seem a little unfair. But the rate of savings is also not on target for many younger workers. The average total savings rate for workers ages 25 to 34 is just 10.5% and 8% for workers under 25. And according to John James, managing director of Vanguard’s institutional investor group. “We believe participants need to reach a total saving rate of 12% to 15%.”


There are multiple reasons why younger workers aren’t saving as much as older workers. And some of how much people are saving comes down to income, age, and how long they have been working. But with the state of the country, it’s no wonder that the younger generation of workers is finding it difficult to stay on track. 

What’s the Point? illustration of a man shrugging with a blue background

Saving for retirement has become a much bigger source of stress for workers entering the workforce now. In previous generations, workers could rely on both private savings and a pension given by their job. According to Thasunda Brown Duckett, CEO of the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA), “Compared with their parents and grandparents, younger generations have fewer options to save for retirement.” 


And not only do younger workers not have as many options, they are also putting too much faith in the retirement plans that they do have. According to a recent TIAA study, half of Millennials and Gen Zers still expect all of their retirement income from a 401(k) or 403(b) plan. But according to Duckett, these sort of employer-based retirement plans won’t be enough to get them through their golden years. 


It’s no wonder, then, that things can feel kind of hopeless for younger workers when it comes to saving enough for a future that’s far down the road. In fact, according to the 2022 State of Retirement Planning report released by Fidelity Investments, almost half the adults between the ages of 18 to 35 (45%) surveyed “don’t see a point in saving until things return to normal.”. Plus, over half (55%) of the same age group had “put retirement planning on hold” during the pandemic.


This age group also graduated college into a Great Recession, was saddled with debt, and catapulted into a terrible housing market. Many haven’t bought houses, and have decided to use their money to enhance their present lifestyles  – and no judgment! But the future is always on the horizon. And if you (or a loved one) haven’t been saving enough for retirement – and have possibly given up on ever being able to save the way you should – there are things you can do to get back on track. Remember, it’s never too late, especially when you’re young!

Tips for Turning Things Around

If you’re looking to get things back on track, Nilay Gandhi, senior wealth advisor at Vanguard. Has laid out three important strategies:

1. Keep your eye on the prize

It might sound counterintuitive, but Gandhi advises not focusing too much on your current retirement savings account balance if it’s one that’s tied to the market. According to Gandhi, “While it may be tempting to focus on your account balance, account balances are heavily influenced by market performance. If you focus too much on your account balance, you may be tempted to react to short-term volatility at the expense of your long-term financial goals.” They suggest focusing more on what you can control, like your current savings rates, investment choices, expenses, and long-term goals. illustration of a man in a business suit leaning on a box with money piled in it

2. Don’t stress about your savings rate

If you’re feeling a little overwhelmed at the thought of a 12-15% savings rate, which experts recommend, don’t let that stress make you throw up your hands and stop contributing what you can contribute. Start with whatever you can afford, and then make a plan to get where you need to be. According to Gandhi, it’s just important to “be sure to save at least enough to get your employer’s full match.”. From there, “increase your savings rate by 1% to 2% each year until you achieve the target savings rate of 12% to 15%.”

3. Diversify 

There are other options in addition to your employer’s 401(k). You can also open a Roth IRA, which is another type of tax-advantaged retirement account. How are these accounts different from a 401(k)? One of the main differences is how they are taxed. With a 401(k), contributions are deducted from your paycheck and deposited before your income is taxed. When you withdraw the money in retirement, those withdrawals are taxed at your current tax rate.


With a Roth IRA, you’re investing money that has already been taxed. While you can’t deduct those contributions from current taxable income, withdrawals made after you turn 59½ aren’t taxed.


You can contribute up to $6,000 a year into a Roth IRA. So if you’ve got some extra money from a side hustle. Or are just looking to have a few more options, try putting some money into one of these accounts.


It can feel like a pretty harsh reality to stare retirement in the face when you’re still young. But consider this number crunching: a 25-year-old making $15 an hour putting away 2.8% of their salary at $16.90 per week might only accumulate $310,000 in 40 years. Now, you might be making more than that, and saving more, but it still might feel stressful to think about how much you’ll really need to save for your retirement. 


But don’t stress! Knowing what you’ve got to do is half the battle, and you have the time to get back on track. Once the holiday spending sprees are over, that is…

Co-written by Joanna Bowling

About The Author:
Cassandra Love

With over a decade of helpful content experience Cassandra has dedicated her career to making sure people have access to relevant, easy to understand, and valuable information. After realizing a huge knowledge gap Cassandra spent years researching and working with health insurance companies to create accessible guides and articles to walk anyone through every aspect of the insurance process.

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