How millennials got a six-figure start on retirement

Those born in U.S. from 1981 to 1997 with 10 years in company pension plan have average of $109,400

If you’ve read the latest headlines, you know millennials get a mixed financial rap. Some reports say they’re throwing their money away on avocado toast and dining out, while others claim they’re killing the earnings of restaurant chains by cooking at home more.

Whatever you believe about their financial habits, some millennials at least are sitting on six-figure retirement accounts. In a Fidelity Investments analysis of 59,000 millennials in the U.S. — those born between 1981 and 1997 — who have participated in their company’s pension plan for10 years, the average balance was $109,400 (U.S.) at the end of June 2017.

This isn’t thanks to rich parents. And odds are that at least some have student loan balances. Rather, the common thread — and secret to fat retirement savings — is consistency. Make it regular If you steadily save a reasonable portion of your income over a long period of time, you’re going to end up with a pile of money.

“Saving slowly and methodically while keeping expenses low will generally get you where you need to go,” says Timothy J. LaPean, a certified financial planner in Minneapolis. “You don’t need to shoot for the sky. All you need is a long series of incremental wins.”

The millennials in Fidelity’s analysis aren’t super savers. Less than a third have a total savings rate — which includes their contributions, plus company matching dollars — of 15 per cent of their income or more.

Financial planners commonly use that 15-per-cent figure as a retirement savings goal. That means more than two-thirds of these millennials aren’t saving “enough” by most standards — or even close to it. The average contribution rate for the group, not including an employer match, is 7.5 per cent. Make it automatic Millennial thousand-aires have also been helped along by automatic contributions pulled directly from their paycheques.

“Human beings on the whole are not built to be good at saving and the best approach is one where you never really see the money in the first place,” LaPean says. Make it in the market The millennials in Fidelity’s analysis saw nearly a 32-per-cent compound annual growth rate, the average amount the account grew each year, over the 10-year period reviewed. Fidelity says about 60 per cent of that was thanks to their own actions — those consistent contributions — and the rest due to market returns.

Those returns come from regularly investing in the market, whether through a company retirement savings plan or other means, and then staying invested. But research has shown millennials tend to be wary of the stock market. According to a Legg Mason survey earlier this year, 85 per cent of millennials say they’re “somewhat or very conservative” investors.

If you’re not sure how to invest or how much risk you can tolerate, consider us- ing an automated investment manager or putting your retirement savings into a target-date fund. Both will allocate your money according to your age and expected retirement date. Some companies also provide employees with retirement planning guidance. Make it without overspending “The first step toward saving enough for retirement is to look at your recurring expenses,” LaPean says. “Can they be lower? Are you spending on anything that is both non-essential and unlikely to improve your long-term joy?”

One month of too-high expenses might not make or break you; a pattern of overspending very well could.

High expenses, LaPean notes, make it harder to save and drive up the amount of money you need to save, because you’ll likely want to maintain that standard of living in retirement.

Keeping costs down means you’ll need less money for retirement and your budget will have some breathing room to meet your goals.