How different generations save for retirement, college, health

Individuals across all generations are changing their savings habits in response to a significantly heightened life expectancy.

According to the National Center for Health Statistics by the Centers for Disease Control and Prevention, Americans are living longer, averaging 78.8 years. This increased life expectancy has changed how savers are planning for the future.

While investment diversification used to be viewed as balancing among stocks, bonds and cash in a portfolio, it now means allocating money to different financial goals — namely, saving for college, health care and retirement.

Sandwich generation
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Ascensus analyzed data from our annual trends report on how Americans are saving for their future needs and financial objectives. The data were pulled from more than 40,000 employer-sponsored retirement plans covering more than 1.6 million employees, 3.8 million 529 college savings accounts and 200,000 health savings accounts on our platform. The results point to a number of emerging trends, particularly a generational shift in savings habits.

It's clear that retirement savers are becoming more proactive and starting younger.

Awareness often inspires progress, and it is clear that millennials are taking a more proactive approach to saving for their future than previous generations. Our data suggest that many of them are using the 401(k) plan vehicle to do so.

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More employers are implementing automatic features in their retirement plans, and younger millennials under the age of 25 are benefiting. They are more likely to be automatically enrolled in their employer plan when entering the workforce, which is further driving participation. As a result, savers ages 25 to 34 have, on average, more than $10,500 saved in their 401(k) plan accounts. Over time this head start on savings stands to make a significant impact on retirement readiness.

The surge in proactive retirement savings is extending to older workers as well. Those closer to retirement and aspiring retirees (savers in the 35 to 54 age range) are thinking more about retirement, and average account balances are increasing as savers enter their 50s.

The data also concluded that college savings is a top priority — even for millennials who don't yet have children.

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Retirement has traditionally been the primary goal for American families. However, as the cost of higher education continues to rise and student debt levels increase, saving for college is quickly coming to the forefront. 529 college savings plans are increasingly utilized by savers wanting to get a head start, as they can be built gradually over time at a rate that suits savers' financial situations.

Interest in saving for college spikes as children enter school, but there is a notable shift happening among millennials, too. While millennial savers currently represent less than 8 percent of 529 account owners, they are the first generation to enter their adult lives already knowing what a 529 plan is and the benefits it can provide in reducing student loan debt.

They are actively planning for their future children's education expenses, and it is expected they will continue to do so, as every bit of savings can make an impact on reducing future debt.

"Data clearly show that every generation is prioritizing their savings for major life goals, such as retirement, college and health care."

Health savings are surging as life spans and medical expenses increase. With Americans living longer, saving for long-term health-care costs has become a higher priority, especially for those close to retirement. According to the Employee Benefit Research Institute, the average American couple needs more than $264,000 total to cover health-care expenses in retirement, as of October 2015.

HSAs, which have become more common, given the introduction of high-deductible health plans, are increasingly being utilized as a supplementary savings tool, specifically earmarked for these late-in-life medical expenses. Notably, current industry data show the HSA industry will reach $50 billion in assets by 2018, up from $30.2 billion in 2015.

As financial demands change, so too do savers' habits. The data clearly show that every generation is prioritizing their savings for major life goals, such as retirement, college and health care.

Savers are recognizing the value proposition of dedicated savings vehicles to reach their long-term financial goals and understand that every dollar saved can make a difference in their financial future.

— By Bob Guillocheau, president and CEO of Ascensus, an independent retirement and college savings services provider