Young Workers Falling Short
Young workers' 401(k)'s aren't OK.
Most Americans are doing a decent job saving through their 401(k) retirement plans. More than two thirds of all workers who are eligible to participate in a 401(k) do, according to a recent study by Hewitt Associates. Unfortunately, the same can't be said for younger workers, a greater percentage of whom will rely on these accounts to cover most of their retirement expenses.
Fewer than a third of workers under 25 contribute to their 401(k) plans. And those who are participating are saving far less than older workers, both in percentage and dollar terms. In fact, while baby boomers (workers 42 to 59) in 401(k) plans sock away more than 8 percent of their salaries on average, workers 18 to 25 save only 5.6 percent.
This explains why many of these young workers have a negligible amount amassed in their accounts. According to Hewitt, the average 18-to-25-year-old has saved only $3,200. Even worse, the median account balance for a generation Y worker is just $1,280.
This is no laughing matter. A Hewitt analysis shows that typical generation Y workers at large corporations who take advantage of 401(k)'s are likely to replace all of their preretirement income. In other words, those young workers who are saving are on track to live as comfortably in retirement as they will during their peak earning years.
But workers who aren't saving through a 401(k) can expect to replace just 43 percent of their preretirement income. And that's including the money they will receive from Social Security.
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