Empower Institute: A generation of young workers first to benefit from retirement plan modernization

Empower Institute: A generation of young workers first to benefit from retirement plan modernization

Young woman at work in office

New survey highlights increasing retirement preparedness through successes brought by the Pension Protection Act of 2006

Millennials on track to replace 75 percent of their income in retirement, compared to 64 percent for Americans overall

Gen Xers and baby boomers believe they’ll have to work at least part-time in retirement

GREENWOOD VILLAGE, Colo., July 11, 2018 — Millennials are the first generation to fully benefit from improvements made to retirement plans over the last decade and it shows now in their retirement savings habits and attitudes, a new survey from Empower Institute reveals.

Millennials – those who were born after 1981 – are on track to replace 75 percent of their income in retirement compared to Generation X workers who are on track to replace 61 percent and baby boomers who are on track to replace 58 percent, according to an Empower Institute survey of 4,000 working Americans ages 18 to 65 who are saving for retirement in any workplace plan, such as a 401(k), 457(b) or 403(b) plan.

The landmark Pension Protection Act of 2006 – enacted at the time when millennials began entering the workforce – allowed automatic enrollment of plan participants, automatic escalation of participants’ contributions and acknowledged the significance of employer contributions to employee accounts, among other reforms. In the ensuing 12 years, the reforms allowed by the legislation have made it possible for defined contribution plans to offer a new mix of innovative components.

Today, 41 percent of millennials responding to the Empower Institute survey are automatically enrolled in a DC plan, compared to 38 percent of Gen Xers and 33 percent of baby boomers. Additionally, 38 percent of millennials are enrolled in a plan with auto escalation features.

“New features such as auto enrollment and auto escalation have come a long way in making access to retirement savings programs easier for employees and in shaking off some of the concerns of the past with earlier DC plan designs,” said Edmund F. Murphy III, President of Empower Retirement. “Millennials are the first generation in the workforce to fully benefit from changes in the law made in 2006.”

The survey results include a Retirement Progress Score (RPS), which is a numeric estimation of the percentage of working income that American households are on track to replace in retirement. The survey results show the median projected income replacement among all the survey participants is 64 percent - meaning Americans, on average, are on-track to replace 64 percent of their current income in retirement.

Murphy noted that there is an 11-point difference in median income replacement percentages among participants across all generations who are enrolled automatically into DC plans versus those who opted into a plan.

Changing attitudes about retirement planning

The survey reveals that attitudes about retirement planning differ among the generations. For example, millennials have the least investable assets now compared to Gen Xers and baby boomers who have been in the workforce longer; however, they are seeking advice and have formal retirement plans in higher rates than older generations.

Some key findings:

  • 24 percent of millennials who responded to the survey say they have a formal retirement plan. That’s compared to 19 percent of Gen X respondents and 17 percent of baby boomers.
  • Fewer millennials than Gen Xers and baby boomers believe they will have to work at least part time in retirement. Forty-eight percent of boomers believe they will need to work at least part time in retirement, compared to 44 percent Gen Xers and 40 percent millennials.
  • Millennials looking out to the future are counting less on Social Security as their retirement income than older generations. Fifty-nine percent of millennials expect Social Security to be a source of income in retirement, compared to 88 percent of boomers and 73 percent of Gen Xers.
  • 61 percent of millennials expect defined contribution plans, such as 401(k)s, to be a source of income in retirement, compared to 55 percent of Gen Xers and 47 percent boomers.

“Millennials who have had access to defined contribution plans are taking charge of their retirement planning by setting up a formal plan and seeking professional advice,” Murphy said. “Those are two strategies that are likely to lead to better retirement outcomes.”

The Empower Institute survey findings are available in a white paper called “Scoring the Progress of Retirement Savers.”

The research was organized by Empower Institute, in collaboration with Brightwork Partners, LLC.*

* Brightwork Partners, LLC is not affiliated with Empower Retirement.

About Empower Institute
Utilizing resources from within Empower Retirement and the academic and policymaking communities, Empower Institute critically examines investment theories, retirement strategies and assumptions, and suggests changes that can achieve better outcomes for companies, institutions, retirement plan sponsors, investment advisors and individual investors. Research from Empower Institute is available at www.empower-institute.org.

About the survey
The survey results are from a national survey of 4,038 working adults (full-time, part-time, never retired) ages 18 to 65, conducted in conjunction with NMG Consulting. Respondents answered an online survey between December 18, 2017 and January 21, 2018.

About Empower
Headquartered in metro Denver, Empower Retirement administers $534 billion in assets for more than 8.5 million participants. It is the nation’s second-largest retirement plan record keeper by total participants (Pensions & Investments, April 2018). Empower serves all segments of the employer-sponsored retirement plan market: government 457 plans, small, midsize, and large corporate 401(k) clients, non-profit 403(b) entities, private-label recordkeeping clients and Individual Retirement Account customers. For more information, please visit www.empower-retirement.com.

Learn More
To learn more about how we’re empowering plan sponsors and their participants to be more engaged in their retirement plans than ever before, call us at 800-719-9914.

“EMPOWER” and all associated logos, and product names are trademarks of Empower Annuity Insurance Company of America. This material is for informational purposes only and is not intended to provide investment, legal or tax recommendations or advice. ©2023 Empower Annuity Insurance Company of America. All rights reserved.