Mike Dullaghan

What motivates millennials to save for retirement?

Mike Dullaghan, DC Investment Specialist, 9/7/2017


  • Auto enrollment has fueled 401(k) participation among millennials, but their contributions still lag older workers'.
  • Most (85%) of millennials view their investment decisions as an expression of their social and political values (Source: U.S. Trust, 2016).
  • 90% of millennials in a recent study noted they are interested in pursuing sustainable investments as part of their 401(k).

Plan design features like auto-enrollment continue to raise participation rates among workers who have access to an employer-sponsored defined contribution plan such as a 401(k).

Nevertheless, deferral rates still vary significantly among different age groups, indicating that some workers may not be taking advantage of a company match or might not understand the long-term benefits of consistent saving.

Auto-enrollment boosts participation

In a recent study, Bank of America Merrill Lynch found that auto enrollment lifts 401(k) participation among all age groups, and particularly among millennials. In the survey, the number of millennials enrolling in a plan for the first time jumped 55% compared with a year earlier, largely due to auto-enrollment. Across all age groups, participation increased 37%.

Still, contribution deferral rates vary and several industry studies found that millennials participate at lower deferral rates than older workers.

Could the grass be greener?

Millennials may not be contributing at higher rates because they feel limited by their financial situation. In the early stage of a career, they may feel constrained by their salary level or other financial responsibilities, such as college debt.

They may also feel constrained by their plan choices. Recent surveys point to a growing interest among millennials in socially responsible, ESG, or sustainable investment choices. Research from Morgan Stanley found that 90% of millennials are interested in pursuing sustainable investments as part of their 401(k)s.

Millennials are leading the way in this nearly $9 trillion market, and are twice as likely as the overall pool to invest in companies or funds that target social or environmental outcomes, the report stated.

Millennials’ interest in sustainable investing grew substantially to 86% in 2017 from 84% in 2015, the report found. The percentage of millennials stating that they were “very interested” jumped to 38% in 2017 from 28% in 2015.

A growing number of investors are factoring sustainability issues into their investment decisions, notes the Global Impact Investing Network. In fact, a 2013 study of wealthy millennials by the Spectrem Group noted that 45% of those surveyed consider social responsibility when making investment decisions.

Plan sponsors are trying a variety of ways to encourage millennials to invest more in workplace savings plans. Two that show promise involve plan design and investment choices. Auto-enrollment has demonstrated the ability to increase participation among millennials, and sustainable investment choices may be attractive to them as well.

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