Data on Retirement Savings for Americans Under 35 Reveals Unexpected Trends

• Only about half of Americans under 35 will have money in retirement accounts by 2022, the latest data available, according to the latest data available.

• Among young people with retirement accounts, the median balance is $18,800.

• Time is the biggest advantage for young savers, as even small early contributions can add up significantly over decades.

If you’re in your late 20s or early 30s, you probably don’t think much about retirement. According to the latest data from the Federal Reserve’s Survey of Consumer Finances, only about half of U.S. households with a reference person under the age of 35 will have savings in a retirement account by 2022..

The latest data from Fidelity Investments tells the same story: On average, savers under 35 have nearly $26,000 set aside in IRAs and 401(k)s. The average balance for savers under 28 is $13,500.

This makes young people the working-age group least likely to have dedicated retirement savings. Of course, this makes sense: In your 20s and 30s, your career is just beginning (or you may be in school), so in many cases, your income and net worth are low.

While only half of young adults have retirement accounts, that may be changing. The survey found that participation rates in this age group are growing – and have continued to increase over the past decade.

If you do manage to contribute to a retirement account at this age, you’ll be maximizing a key advantage: time.

“A dollar saved at age 25 may be worth $4 or $5 at age 55, not because of any magic formula, but because it can compound quietly over 40 years while you’re busy doing other things,” said Eric Ludwig, Ph.D., CFP, RICP, director of the Center for Retirement Income at the American College of Financial Services. “Tragedy doesn’t start from scratch, it waits.”

Early adulthood can make saving difficult, but time is still on your side. Even if you can’t contribute much—even $30 a month (a dollar a day)—the money won’t simply add up. It’s compounded.

For those ages 18 to 34 with a retirement account in 2022, the median balance is $18,800. Not surprisingly, this figure is significantly lower than the balance reported by older age groups, but it is not nothing. For many people, this is a huge amount of money.

At this point in your life, your first priority should be getting into the habit of saving for retirement, Ludwig says.

“A reasonable early benchmark is about a year’s worth of core living expenses saved in your early to mid-30s, recognizing that debt repayments and housing costs compete fiercely for cash flow.”

The median is the midpoint, meaning half of the group saves more and half saves less. Using the median rather than the mean reduces the biasing effects of unusually high or low balances and thus more accurately represents typical individuals.

“If you’ve recently started saving for retirement, remember to keep adding money to accounts like a 401(k) or individual retirement account (IRA), even if you start with a small amount,” said Mindy Yu, CIMA, senior director of investing at Betterment.

Here are her tips for increasing your retirement savings:

• Invest in your future. Start contributing to your retirement fund once you are able to cover your basic living expenses. Even 1%-2% of your salary can make a difference.

• automation your savings: Set up recurring transfers from your checking account to your emergency fund. Start small and gradually increase as much as possible.

• Use employer benefits: Some employers offer a variety of benefits, such as 401(k) matching, HSAs, FSAs, and even student loan repayment assistance. See what you can gain and try to maximize those benefits. At the very least, you should try to contribute enough to earn your employer’s 401(k) match.
  

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