What's Keeping Millennials From Saving More for Retirement?

With the future of Social Security uncertain and traditional pension plans fast disappearing, many millennials understand that the responsibility of saving for a comfortable retirement falls squarely on their shoulders. But this generation of workers under age 35 faces several distinct challenges when it comes to saving more.

While some of these challenges are unsurprising, given the unique set of economic conditions affecting this group, others come down to prioritization. According to a recent survey, 37 percent of millennials are not saving more for retirement because they are still paying back student loans. Even more of them -- 44 percent -- aren't saving more because they do not want to sacrifice things that add to their current quality of life, such as occasional dinners out and vacations.*

Juggling multiple financial priorities is no small feat, especially when you're new in your career. But that doesn't mean you should neglect something as important as your retirement, even when it seems like a lifetime away. At all stages of your career, it pays to know how you can make the most of your 401(k) to stay on track towards meeting your retirement goals.

First Things First

When you have multiple financial obligations and limited resources, it can be tough to know what to tackle first. A younger person might think it makes sense to focus on paying down student loan debt first and worry about retirement later. But I always say that that saving enough in your 401(k) to take full advantage of any matching dollars from your employer should be your number one financial priority -- even above paying down loans and credit cards or saving in an emergency fund.

Why? Because the 401(k) employer match is like an automatic return on your investment that you can't get anywhere else. For example, if you earn $50,000 a year and your employer matches fifty cents for each dollar you contribute to your 401(k) up to six percent of your salary (a common match formula), you would have an additional $1,500 in your account on top of the $3,000 you contributed. Over time, and thanks to the power of compounding, those contributions could really add up.

Stay on Track

Even if you form good savings habits early on, there will likely be additional pressures on your pocketbook as you get further along in your career. The aforementioned survey found that 32 percent of Generation X, or those between 35 and 49 years old, are not saving more for retirement because they want to save for their children's education. Moreover, this group is most likely to have taken a loan from their 401(k): 31 percent have done so, compared to 13 percent of Millennials and 29 percent of Baby Boomers.

Even when times are tough, taking a loan from your 401(k) should be considered a last resort. There are a number of negative consequences associated with 401(k) loans. For one, you must repay the loan with after-tax dollars. Additionally, if you leave your job and you can't pay back the loan in full, your outstanding balance is treated as a withdrawal, spurring a tax bill and potentially an additional 10 percent penalty. This may really derail your retirement savings plan, and you could feel the effects for years to come.

Ask for Help

The good news is that no matter where you are in your career there are plenty of resources available as you navigate your financial responsibilities and plan for retirement. Many 401(k) plans include advice services to help guide you on everything from contribution level to asset allocation to what to do during periods of market volatility.

While three-quarters of millennials (76%) claim they would like help managing their 401(k), just seven percent are currently receiving professional advice. On the other hand, more Baby Boomers (ages 50-70) are currently getting 401(k) investment advice than any other generation. They say with age comes wisdom, and that certainly applies in this case. Millennials would be smart to follow the Boomers' example and take advantage of any managed account/advice services that are available as part of their 401(k) plan.

No matter where you are in your career, saving for the future can be a challenge. Knowing how to prioritize and take advantage of the many resources that are available to you can help ease the process as you plan for the lifestyle you want in retirement.

*2015 401(k) Participant Survey conducted by Koski Research for Schwab Retirement Plan Services, Inc. Koski Research is not affiliated with Schwab Retirement Plan Services, Inc.

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