Here’s how millennials are outsmarting older savers at retirement

Key Points
  • Nearly two out of three millennials say they are confident making investment decisions by themselves.
  • A quarter of millennials invest leftover cash in the stock market.
Matt Porteous | Getty Images

The kids are all right when it comes to saving for retirement.

Those are the findings from a recent Charles Schwab survey of 500 savers in a workplace 401(k) plan.

Of the millennials polled, 64 percent said that they were "very or extremely confident" making investment decisions on their own.

Older participants weren't as certain of their prowess, as 47 percent of Gen Xers and 39 percent of boomers felt "very or extremely" confident about choosing their investments on their own.

Millennials also report being fee-conscious when choosing their 401(k) investments: 51 percent said that fees influence their decisions "a lot."

In comparison, about 4 out of 10 Gen Xers and boomers felt the same way. The online survey was taken in June and participants ranged from 25 to 70 years of age.

Chalk it up to the availability of information.

"Millennials came of age with so much access to information and the democratization of knowledge," said Catherine Golladay, senior vice president, 401(k) participant services and administration at Schwab Retirement Plan Services.

Here's what you'll need to bolster your confidence about your 401(k) plan choices.

Let the pros do the work

Some 401(k) plans allow their employees to select their own stocks and mutual funds through a brokerage window.

That's fine if you have the expertise to study the fundamentals of your stocks and ensure that your picks fit your long-term savings goals.

However, most workers would benefit from having a professional oversee their investment choices and ensure they have adequate diversification across different asset classes.

Savers can get that professional advice through a managed account, which combines customized asset allocation with investment advice.

"When you think about professional advice or managed accounts, we take so much into consideration, including marital status and salaries" said Golladay.

Indeed, 8 out of 10 millennials in Schwab's poll said they would like personalized investment advice for their retirement plan.

A target date fund would be the next best bet. See the chart below for details on returns.

These funds adjust their asset allocation to stock and bond funds based on the year in which you plan to retire.

Assets in target date funds hit an all-time high of $880 billion at the end of 2016, according to Morningstar.

Know your fees

It's getting cheaper to invest at work, but you should still dig into the details of your plan's expenses.

In 2000, savers in 401(k) plans paid an average expense ratio of 0.77 percent for equity funds, according to the Investment Company Institute. Sixteen years later, that fee fell to an average of 0.48 percent, a price chop of nearly 40 percent.

Fund fees are just the tip of the iceberg when it comes to costs in your retirement plan. See the chart below.

There are resources for savers who want to dig into the details of their 401(k) expenses. FeeX, for instance, is a service that researches fees in retirement plans, brokerage accounts and IRAs.

Meanwhile, BrightScope rates retirement plans based on their expenses and the generosity of the employer.

Never stop saving

Millennials' greatest advantage is time, particularly if they're automatically enrolled in a plan early in their career.

"Many millennials came into the workforce when auto enrollment came into practice," said Golladay of Schwab. See the chart below for data on auto enrollment default rates.

A quarter of these young investors sock away any left over money they have each month into the stock market, according to Schwab's survey.

More than 3 in 10 of the polled millennial said they were likely to put any spare cash they had toward their retirement plans.

Save early and often. The rule of thumb among retirement planning experts is to invest 10 to 15 percent of your salary into your 401(k) as soon as you can in order to benefit from compounding interest over time.

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