In February 1967, the personal savings rate for American workers was 12.4%. In February 2017, the personal savings rate was 5.6%.
With lowered earnings, higher cost of living, and increasing levels of debt, American workers are finding it more difficult to save money.
Despite this, millennials are still saving where they can. More than 30% of Americans ages 18 to 26 have enough saved to cover three to five months of living expenses. Arguably, millennials are better savers than previous generations. According to a 2017 Bankrate.com survey, on average, millennials are saving 19% of their annual income, compared to the 14% saved by Gen X and baby boomers.
However, the how and why of millennial savings differs from past generations. And nowhere is that clearer than in how millennials view retirement plans.
Saving To Retire? Or Saving To Maintain?
Although the number of 401(k) accounts opened by millennials continues to rise — thanks, in part, to employer auto-enrollment — a 2016 Wells Fargo poll of working millennials found 52% were concerned stock market volatility would impact their 401(k) plans.
A lack of confidence in the long-term yield of their 401(k) plans combined with the uncertain future of Social Security motivates millennials to rely on personal savings for the future.
But whereas retirement might be on the mind of young adults, that doesn't mean it's a top priority for what and where we designate our savings.
For example, 22-year-old Natalie Freitag lives in Indianapolis, IN, and attends IUPUI graduate school. She works at an occupational therapy clinic to support herself while obtaining her master’s degree and regularly puts money into a personal savings account.
“I try to keep the amount I put into savings consistent, but sometimes I have to put in lower amounts because of the cost of living here,” she says. “I designate the money for emergencies, mostly.”
Freitag has not officially opened an account designated for retirement savings but the need for one is on her mind.
“Retirement savings would probably be third on my priority list,” she says. “Paying off my student debt and living expenses come before saving for retirement.”
Freitag does aspire to retire at some point, but a 2017 study by Merrill Lynch shows only 37% of millennials are saving for that milestone. The rest reported saving to maintain or achieve their desired lifestyle.
“I just want to be able to pay my bills without struggling and hopefully travel a little bit,” Freitag says. “Mostly, I want to be able to afford my living without going into debt.”
Will Whitten, a 20-year-old sales representative for United Coating Technologies in South Bend, IN, regularly dedicates approximately 25% of his monthly income to a savings account. He also holds a 401(k) account he plans to access by age 65.
“I’m working hard and saving now so when I’m older I can relax or go on a trip if I want,” he says.
Whitten does not have a personal savings account designated to retirement savings alone. Instead, he says his savings account is for “whatever emergencies happen.”
“I have a mindset of saving,” he says. “Nothing really comes before putting money away. I feel strongly that how I want to retire is how I want to retire.”