Super-Saving for Retirement? Here’s Where Millennials Are Falling Short by Saving Too Much
Written by
Andrew Lisa
Edited by
Cory Dudak
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Millennials are America’s saving generation.
The New York Life Wealth Watch 2024 report found that those born between 1981 and 1996 put $9,299.45 in the bank last year — not bad compared to the average adult’s $6,138.06. Their closest competitors were Gen Xers, who didn’t even save an average of $6,500.
Millennials also joined baby boomers as the generation most likely to have money set aside, and joined Gen Z as the most likely to develop a second income stream.
Part of the reason for the generation’s success is a dedicated group of “super savers” — millennials who bank unusually large portions of their incomes in pursuit of a retirement that’s richer, earlier or both.
But as well as millennial super savers are doing, many might reach their goals even sooner with a few tweaks and strategy changes.
All Millennials Should Aim for Double Digits — but Reasonable Double Digits
Millennials who aren’t reaching their Retirement saving goals should not look up to their parents for guidance, but down to their younger siblings.
According to the 24th Annual Transamerica Retirement Survey of Workers, which the Transamerica Center for Retirement Studies published in June, more than half of Gen Z (53%) qualify as super savers — which is more than any other generation, asthe rest are mired in the low-40s.
Just 44% of millennials qualify as super savers, but the bar for joining their ranks isn’t as insurmountable as recent social media trends might have you believe. The FIRE movement put the idea of saving 50% to 70% of every paycheck into the American consciousness — but that’s an entirely reachable goal for most. The good news is that saving one dollar in every 10 you earn is enough to get you to the mountaintop.
Transamerica defines super savers as workers who save or invest at least 10% of their salaries. More than half of all workers — 56% — save less than 10%, but 15% contribute between 11% and 15%, with 29% contributing more than 15% of their annual pay to their retirement funds. Millennials who are falling behind should catch up by becoming super savers, but they should keep their double-digit aspirations manageable, and avoid setting unattainable goals like the rarely successful hyper-saver FIRE adherents. Those who aim too high are more likely to fall short, get frustrated and give up.
The Secret to Super-Saving: Focus on the 401(k)
CNBC analyzed the Transamerica research and data from Vanguard to draw one clear conclusion: the most successful super savers are relentless in their mission to stuff their employer-based accounts with every possible dollar.
In 2024, the IRS allows a maximum contribution of $23,000 for 401(k)s. Those 50 and older can overstuff their pre-tax retirement funds by $7,500 for a total of $30,500 with catch-up contributions.
The reason employer-based accounts enable super-saving is that those without them who open IRAs receive the same tax benefits, but they’re limited to maximum deposits of less than one-third of what they could have socked away in a 401(k).
Those who max out their 401(k) contributions tend to be older and earn higher salaries of $150,000 or more — but they all share one thing in common. People who contribute every available dollar to an employer-based 401(k) are more likely to become successful super savers than those who put comparable amounts of money in another kind of account.
Increase Contributions — Not Spending — When You Earn More
Millennials are either in or approaching middle age — prime earning years for most occupations. No matter the field, higher pay gives every employee the same two options: when you earn more, you can either spend more or save more.
According to CNBC, millennials striving for super-saver status must ignore the trap of lifestyle inflation. In fact, they should move in the opposite direction and aim to increase their savings by 1% per year — which would necessitate an equal reduction in spending — even when their wages remain flat.
Those who do earn more must remember the rule of threes. One-third of any pay raise or bonus will go to taxes, one-third should go to saving and investing and you should set aside one-third for fun. After all, retirement is as important as the here and now — but not more important.
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