Overview
Americans do most of their saving for retirement at their jobs, though many private sector workers lack access to a workplace plan. In addition, many workers whose employers do offer these plans face obstacles to participation, such as more immediate financial needs, other savings priorities such as children’s education or a down payment for a house, or ineligibility. Thus, less than half of nongovernment workers in the United States participated in an employer-sponsored retirement plan in 2012, the most recent year for which detailed data were available.1
To help more people save for their later years, lawmakers in Congress and statehouses across the country have introduced retirement savings initiatives.2 More than 30 states have considered or passed legislation focused on this goal. Policymakers at all levels seek to increase retirement security, reduce poverty, and lessen reliance on federal and state social assistance. Many of these initiatives would help more workers save by taking regular contributions from their paychecks.
Many Americans have opportunities to save throughout their careers, but their actions tend to change as they age. Earlier research by The Pew Charitable Trusts looked at indicators of financial health by generation, such as overall wealth and how prepared each generation was for retirement.3 This chartbook examines data from the 2012 Census Bureau Survey of Income and Program Participation to look for differences among millennials, Generation Xers, and baby boomers in how many participate in employer-sponsored retirement plans. Then it explores some key reasons for those differences and notes similarities in access rates, participation rates, and reasons for not taking part.
Among the findings:
- Participation in retirement plans increases with age: Millennials have the lowest rates, and baby boomers the highest. Access to plans and the percentage that chooses to take part drive the participation rate.
- Access to plans also increases with age: As workers gain expertise and experience, they more often qualify for higher-paid jobs that are more likely to offer retirement benefits. Older workers also may be more likely than younger ones to stay in jobs long enough to become eligible for workplace plans.
- Takeup of retirement plans when offered increases with age, education, and income. Millennials were most likely to cite ineligibility as the reason for not participating. Gen Xers most frequently pointed to affordability. Baby boomers noted, about equally, problems with eligibility and affordability.
- Employer matches to employee contributions can be an important motivator for all age groups. When a match is offered, takeup rises by 15 to 15.5 percentage points in each generation.
The Generations
This chartbook defines the age groups this way:
- Millennials were born from 1981 through 1997. In this study, we included only millennials 22 and older—born through 1990—to focus the analysis on those who are likely to have finished their schooling.
- Gen Xers were born from 1965 through 1980.
- Baby boomers were born from 1946 through 1964.
Participation rates rise with age. Older workers have greater access to retirement plans and higher takeup rates.
In 2012, 31 percent of millennials participated in an employer-sponsored program, whether a defined benefit plan such as a pension or a defined contribution plan such as a 401(k).4 About half of Gen Xers participated in a plan that year, while 56 percent of baby boomers took part in one. Though traditional pensions were once the more typical way to build retirement income, participation rates for defined benefit plans varied in a relatively narrow range, rising from 6 percent for millennials to 13 percent for boomers. Participation rates in defined contribution plans rose more dramatically by generation, from 25 percent for millennials to 40 percent for Gen Xers and 43 percent for boomers.5
One important reason for low participation rates is lack of access. Thirty-five percent of private sector workers 22 and older do not work for an employer that offers a defined contribution plan or a traditional defined benefit plan.
Forty-one percent of millennials who are at least 22 have no access to either type of plan through their employers, compared with 35 percent of Gen Xers and 30 percent of baby boomers.6 Part of that can be attributed to the type of work. Millennials have faced challenges finding jobs that offer retirement and other benefits, while lower-wage jobs are less likely to come with retirement benefits.7 In early 2016, unemployment among recent college graduates stood at 5.6 percent, and underemployment— working fewer hours than desired—was at 12.6 percent.8 The share of young adults with degrees working in jobs that do not require one, another measure of underemployment, has risen over the past decade with more of these workers in lower-wage, lower-skilled jobs now than in 2000.9
The takeup rates among workers of different generations also affect participation. When an employer offers a retirement plan, millennials are less likely than their older coworkers to participate. Fifty-two percent of these younger workers take up defined contribution plans when offered, compared with 75 percent of Gen Xers and 80 percent of baby boomers. Millennials are just starting out in their careers and are likely to earn less, as well as to have unsecured debt.10 They also may have other financial priorities, such as buying first homes, marrying, or starting families.
For every generation, takeup rates are higher for traditional defined benefit plans than for defined contribution plans when available. Sixty-two percent of millennials, 79 percent of Gen Xers, and 83 percent of baby boomers join a defined benefit plan when offered.11
Among the factors that affect takeup rates are ineligibility, whether workers feel they can afford to save, and how high a priority building retirement savings is.
Even if an employer offers a retirement plan, certain workers still may not be eligible. Millennials, for example, are more likely than older employees to work too few hours, making them ineligible.12 Millennials also may not have been with their employers long enough to become eligible.13 Among millennials who had access to defined contribution plans but did not enroll, 51 percent gave ineligibility as the main reason, while 34 percent cited affordability.
For those in Generation X, affordability was most often cited as a reason for nonparticipation, followed closely by eligibility. For Gen Xers, the expenses of raising a family may crowd out saving. Baby boomers cited eligibility and affordability in roughly equal shares.
Parenthood may have offsetting effects on retirement saving. Having children may motivate workers to find jobs with benefits, including retirement plans. But raising children is expensive and may increase concerns about whether retirement savings are affordable.
Parenthood increases concerns about affordability among millennials and Gen Xers. Still, even for millennials with children, eligibility concerns trump affordability as a reason for not taking up a retirement plan.
Affordability is a more important reason than eligibility for Gen Xers with children. For baby boomers, there is little difference between those with and without children in citing affordability as a factor in participating in a defined contribution plan. That could be attributed to the ages of any children. The youngest boomers, born in 1964, were 48 in 2012 when the survey was conducted; for the older members of this generation, children may have…