Navient | Money Under 35 1

MONEY UNDER 35

Millennials: From adulting to retirement

Agree that retirement savings can wait, by age

Belief that saving for retirement can wait declines only slightly with age

Financial experts are universally concerned that Americans are not saving enough for retirement. Millennials, the large majority of whom are not saving for retirement, are no exception. Navient’s Money Under 35, a national study conducted by global research firm Ipsos, provides a snapshot of the financial lives of young Americans aged 22 to 35. In this special report, we take a closer look at how millennials are preparing for their post-career lives.

• Just 3 in 10 young Americans are saving for retirement and nearly 4 in 10 believe that saving for retirement can wait.

• Adults whose employer offers a 401(k) match program are nearly twice as likely to save for retirement than those whose employer does not, and they have nearly twice the amount saved.

• Bachelor’s degree holders are more likely than their peers with either higher or lower levels of educational attainment to be saving for retirement, regardless of whether they borrowed for school.

• Young adults who are simultaneously making progress on their student loans and saving for retirement are more likely to score in the “excellent” range on the Financial Health Index.1 This financial progress becomes more likely starting around age 28.

• Young adults who appear to be focusing on their student loans before saving for retirement are more likely to rate their current financial health as “very good”2 than those who are saving for retirement but have not made much progress on their student loan balances.

Highlights

Can’t it wait? Retirement is years away.

Many young adults (38%) believe that saving for retirement can wait, especially those aged 22-24 (44%). That belief stays fairly constant between ages 25 and 35.

Nearly half of men (45%) believe saving for retirement can wait, compared to just 30 percent of women. Interestingly, men are slightly more likely than women to report that their top savings priority is retirement (15% of men compared with 11% of women). Perhaps reflecting confidence in their ability to catch up later, workers earning more than $100,000 annually are much more likely than those earning less than $100,000 to say retirement savings can wait (55% vs. 34%). Similarly, those who rate their current financial health as “very good” are also more likely than their peers to say that saving can wait.

0

10%

20%

30%

40%

50%

Age22-24

Base: All

Age25-27

Age28-30

Age31-33

Age34-35

44%38%

35% 36% 35%

1 The Financial Health Index divides young adults into three categories of financial health: “poor,” “good,” and “excellent” on a scale of 0-100. "Poor"<=42; "good" = 43-77; "excellent" >=78.

2 Self-rated on a scale of 1-10. “Very good” = 10/9/8; “Neutral” = 7/6/5/4; “Poor” = 3/2/1.

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On the other side of the financial spectrum, unemployed young adults are also likely to say that saving for retirement can wait (40%). Homeowners (41%) and parents (41%), perhaps because they feel they have more immediate and urgent financial needs, are more likely than renters (33%) and those without children (35%) to agree that retirement savings can wait.

However, roughly 1 in 10 (11%) of young adults who agree that saving for retirement can wait are actually saving for retirement now.

0%

Base: Employed

10% 20% 30% 40% 50% 60%

High income($100k+)

Middle income($35k - <$100k)

Low income(<$35k)

55%

34%

34%

0%

Base: All

5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Very good(8/9/10)

Neutral(4/5/6/7)

Poor(1/2/3)

47%

31%

38%

Agree that retirement savings can wait, by personal income

Retirement savings 2015 - 2017

Agree that retirement savings can wait, by self-described financial health

Financial confidence could contribute to the belief that saving for retirement can wait

Retirement savings patterns are relatively stable over the three years of this study

Some young adults prefer to get an early start

Saving for retirement is an important element of overall financial health, and as such is one of the 15 indicators included in Money Under 35’s Financial Health Index. Only 3 in 10 young adults (31%) report saving for retirement, a rate that has remained consistent since 2015. Among adults who indicate they are saving for a specific goal, 13 percent indicate retirement is their top priority for savings, up slightly from 10 percent in 2016. The average amount those saving for retirement had accumulated in 2017 ($32,818) decreased from the 2016 high of $37,638.

0%

10%

20%

30%

40%

50%

$0

$5,000

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

2015 2016 2017

Ave

rag

e am

oun

t sav

ed

Base: All

Retirement savings 2015 - 2017

Average amount saved Percent saving Top savings priority Believe saving can wait

$29,430

$37,638

$32,818

29% 29%31%

39%

44%

38%

11% 10%13%

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Retirement savers are likely to be saving for other goals as well. Roughly half of adults saving for retirement also are building an emergency fund (56%) or saving for a vacation (49%). They are also likely to be saving for other common goals such as homeownership.

Other savings goals for retirement savers

Retirement savings by age

Adults saving for retirement are also likely to be saving for other specific goals

Young adults in their early 30s are more likely to have more than $50,000 saved than those aged 30 or younger3

0% 10% 20% 30% 40% 50% 60%

Car

Children'seducation

Homeownership

Vacation

Emergency fund

Base: Saving for retirement

Savings goals

37%

49%

56%

33%

29%

Adults who are saving for retirement are positive in their evaluation of their current financial health and confident that they would be able to meet an unexpected expense with existing savings. Four of 10 retirement savers (41% vs. 36% of all) rate their overall financial health as “very good”, and 6 in 10 (compared to 46% of all) believe they have enough saved in case something unplanned happens.

Retirement savings behavior differs by age, educational attainment, personal income and employment status. Young adults in their 30s (aged 31 to 35) are more likely to be saving for retirement than young adults aged 22 to 30 (36% and 28%, respectively) and to have higher average savings ($39,936 vs. $28,643 saved among those aged 22 to 30). While saving for retirement is not a high priority for most young adults, those aged 31 to 35 are more likely to prioritize saving for retirement over other goals (18%) than those in their 20s (10%).

0%

100%

All Age22-24

Age25-27

Age28-30

Age31-33

Age34-35

>$50,000

$10,001-$50,000

$5,001-$10,000

$1,001-$5,000

$1-$1,000

$0 saved

Not saving

Base: All

69%

11%

4%

5%3%

6%

3%

76%

9%

3%4%2%3%

2%

70%

9%

5%

7%

2%5%

2%

69%

10%

3%3%3%

9%

3%

65%

13%

3%4%3%

7%

3%

63%

14%

4%4%2%

9%

4%

3 “Not saving” = did not include retirement as one of the goals for which they are saving. “$0 saved” = those who included retirement as one of their savings goals, but then reported having $0 saved specifically for that goal.

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4 According to a 2017 analysis by the Pew Charitable Trust of 2012 Census Bureau survey data, 49% of millennials had access to a 401(k) program through their employer and another 10% had access to a pension plan through their employer.

5 Borrowed for college = anyone who borrowed for education, including both those who are currently paying those loans and those who have paid off their loans. Did not borrow = those who attended college but did not borrow. Has student debt = those who attended college, borrowed and currently have student loan debt. No college debt = those who do not currently have student loans, including some who borrowed for college and have paid off their loans.

Nearly 4 in 10 full-time workers (38%) are saving for retirement, compared with just 21 percent of part-time workers and 13 percent of unemployed young adults. Adults working full time also have accumulated more average savings; $38,021 compared with $13,579 saved by those working part time or $5,473 saved by those who are currently unemployed.

The presence of a 401(k) plan correlates strongly with increased savings rates. Half of employed young adults report that their employer offers a 401(k) match.4 Those offered such a program are almost twice as likely to be saving for retirement than those whose employer does not offer a 401(k) match (61% and 31%, respectively). They have also accumulated nearly twice the average savings, $32,851 compared with $18,879.

Nearly half of bachelor’s degree holders aged 22 to 35 (45%) are saving for retirement, more than their peers with other levels of education: 38 percent of advanced degree holders, 31 percent of associate degree holders and 25 percent of young adults who do not have a degree.

Among young adults who either completed an associate degree or attended college but do not yet have a degree, college borrowing or the presence of student loans does not appear to make a difference in whether retirement is one of

0%

10%

20%

30%

40%

50%

60%

High school or less

Some college, no degree

Associate degree Bachelor's degree Advanced degree

Base: All

Saving for retirement by education level and college borrowing status

All Borrowed Did not borrow Has student debt No student debt

25% 25%

31%

45%

38%

25%

33%

45%43%

27%29%

45%

28%25%

28%

39%

46%

26%

34%

51%

34%

their savings goals. For bachelor’s degree holders, there is no difference in the percentage who are saving for retirement between those who borrowed for their education and those who did not borrow. However, bachelor’s degree holders who still have student debt are less likely to be saving for retirement (39%) than their peers who do not have student loans (51%); but still more likely to be saving than those adults with less education, or those who did not attend college at all.

Advanced degree holders who borrowed, or who still have student debt, are more likely than their peers who did not borrow to be saving for retirement.

While bachelor’s degree holders who did not borrow to help pay for college are no more likely to be saving for retirement than those who did borrow, they typically have more saved than those who borrowed ($32,994 vs. $29,477). Bachelor's degree holders who have paid off their loans have saved nearly twice as much as those who are working on repayment ($47,297 vs. $25,301 respectively). And while advanced degree holders who borrowed or still have student debt are more likely to be saving for retirement, they have not saved as much as their peers who did not borrow or who no longer have student loans.

Saving for retirement by education level and college borrowing status

Bachelor’s degree holders are most likely to be saving for retirement, regardless of college borrowing5

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6 Rutledge, Matthew, Geoffrey Sanzenbacher and Francis Vitagliano. June 2018. “Do young adults with student debt save less for retirement?” Center for Retirement Research at Boston College.

7 GoBankingRates, February 2018. “How much does the average American have saved for retirement?” 8 “Retirement First” young adults have money saved for retirement and currently owe more than 50% of their original student loan balance. “Loans First” have paid off

50% - 100% of their student loan balance but do not have money saved for retirement. “Doing Both” have retirement savings and have paid off 50% - 100% of their student loan balance. “Doing Neither” do not have money saved for retirement and they currently owe more than 50% of their original student loan balance.

A recent study conducted by the Center for Retirement Research,6 using data from the National Longitudinal Survey of Youth 1997 Cohort, identified a similar pattern in that the presence of student debt appears to have little effect on retirement savings participation, specifically the use of 401(k) accounts. However, the study finds that those who graduated and have student debt have less saved by the age of 30 than those who do not have student debt.

People who earned an associate degree or higher are more likely to be saving for retirement – regardless of whether they borrowed – than those who did not attend college. Just 25 percent of those who did not attend college are saving for retirement, compared with 42 percent of those with an associate degree or higher who borrowed for their education or 38 percent of degree holders who still have student debt.

The trade-off: save for retirement or pay off student loans?

According to recent research from GoBankingRates,7 millennials are more likely than older adults to indicate that they are not saving for retirement because they are prioritizing paying down debt. Eleven percent of non-saving millennials were working on paying down debt, vs. 4 percent of Generation X or Baby Boomers. Young adults face competing demands on their financial resources and must make tough choices between paying off debt and building their savings. Financial literature provides advice and calculators designed to help evaluate these trade-offs, which can help young adults make the best decision for their unique circumstances.

In this Money Under 35 special report, we grouped young adults who borrowed for college into one of four categories based on their behavior: Retirement First, Loans First, Doing Both and Doing Neither8 in order to examine the short-term impact of these financial trade-offs more closely.

Not surprisingly, the young adults in the “Doing Both” group are the most likely to have an “excellent” Financial Health Index score (28%), and those in the “Doing Neither” group are the most likely to score in the “poor” range on the Financial Health Index (27%). Those in the “Loans First” group, who appear to be prioritizing paying off their student loan debt over building retirement savings, are slightly more likely to have an “excellent” Financial Health Index score (19%) than those in the “Retirement First” group (12%).

Note that only those young adults in the “Doing Neither” group are more likely to have a “poor” Financial Health Index score (27%) than those young adults who did not attend college at all (20%).

In addition to the calculated Financial Health Index score, individuals were asked to rate their own financial health. Half of young adults in the “Doing Both” group rate their current financial health as “very good” and just 3 percent rate their financial health as “poor.” Young adults in the “Doing Neither” group are as likely to rate their current financial health as “very good” (25%) as they are to rate it as “poor” (24%). The “Loans First” members are more likely than those in the “Retirement First” group to rate their current financial health as “very good,” 36 percent and 23 percent respectively.

0%

20%

40%

60%

80%

100%

DoingBoth

RetirementFirst

Loans First

Doing Neither

Base: Borrowed for college

Financial Health Index scores by trade-o� behavior

Excellent

Good

Poor

2% 14% 13%27%

70%74% 67%

64%

28%12% 19% 9%

0%

20%

40%

60%

80%

100%

Doing Both

Retirement First

LoansFirst

Doing Neither

Base: Borrowed for college

Self -reported financial health by trade -off behavior

Very good (8/9/10)

Neutral (4/5/6/7)

Poor (1/2/3)

3% 10% 12%24%

48%

67%53%

51%

49%

23%36% 25%

Financial Health Index scores by trade-off behavior

Self-reported financial health by trade-off behavior

Young adults saving for retirement and paying down their student loans are most likely to have an “excellent” Financial Health Index score

“Loans First” adults are more likely than “Retirement First” adults to rate their financial health as “very good”

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With age comes progress on financial goals. More than half (55%) of young adults aged 22 to 27 are neither saving for retirement nor making significant progress on their student loans. As they leave their 20s and enter their 30s, however, those who borrowed student loans have either paid them off or have paid off most of their balance and are more likely to be saving for retirement. Just 5 percent of young adults aged 22 to 27 are in the “Doing Both” group, jumping to 20 percent of those aged 28 to 35 – including 27 percent of 34-to-35-year-olds. Similarly, only one-third of young adults aged 28 to 35 (36%) are in the “Doing Neither” group, nearly twenty percentage points less than those aged 22 to 27.

0% 20% 40% 60% 80% 100%

All

Age 22-24

Age 25-27

Age 28-30

Age 31-33

Age 34-35

Base: Borrowed for college

Trade - o� behavior by age

Doing Both Retirement First Loans First Doing Neither

14%

4%

7%

20%

14%

27%

11%

15%

16%

10%

10%

4%

31%

26%

23%

33%

40%

35%

44%

55%

55%

38%

36%

34%

Men and women exhibit very similar behavior with respect to their retirement savings and student loan payments, although men are slightly more likely to be in the “Doing Both” category (16% of men vs. 12% of women), and women are slightly more likely to be in the “Doing Neither” category than men (46% of women vs. 41% of men).

Young adults just starting out in their professional lives have competing short-term financial goals that can sometimes mean long-term goals like retirement are put off. College-educated young adults are more likely than their peers with no degree to save for retirement, regardless of whether they borrowed to help pay for

their education; but those who borrowed typically have saved less. And while adults aged 31 to 35 are indeed more likely to be saving than those in their 20s, the majority (64%) are not. As a result, many young people lose out on one of their greatest allies when it comes to funding a comfortable retirement – time.

Conclusion

Young adults show signs of progress on both their student loans and retirement savings around age 28

Trade-off behavior by age

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To read the full Money Under 35 report, please visit Navient.com/MoneyUnder35.

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