Personal Finance

3 practical tips from millennials, Gen Xers who are maxing out their 401(k) plans

Key Points
  • More than half of millennial and Gen X savers in a survey by Principal had put away more than $20,000 for retirement in the last year.
  • Seven out of 10 are making the maximum contribution to their 401(k) — $18,500 — without having a budget in place.
  • Treats aren’t off limits: Half of participants say travel is their top splurge.
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If you're trying to contribute the max to your retirement plan, know this: You can still have your Netflix or Hulu subscription and go on vacation.

The Principal Financial Group studied 1,498 adults in October and November last year. Participants saved at least 90 percent of the maximum allowed under their retirement plan.

This year, you can defer up to $18,500 in your 401(k). In addition, you can save up to $5,500 annually in an IRA, plus $1,000 more if you're over age 50.

The constant of change: Millennials at work

The participants, who were employees in companies that use Principal's retirement plan recordkeeping services, were born between 1965 and 1995 — a cohort that combines Gen X and millennials.

Big savers also tend to be big earners: Close to 80 percent of the participants had income exceeding $100,000.

"We spend a lot of time talking about what people aren't doing right when saving for retirement," said Jerry Patterson, senior vice president, retirement and income solutions at Principal Financial Group.

"We aren't spending enough time celebrating what people are doing correctly," he said.

These are the three habits of retirement "Super Savers," according to Patterson, that you could emulate.

"Save more and start early."

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Just more than half of the respondents started saving for retirement in their early to mid 20's.

Millennials were a little earlier to the 401(k) party, compared to Gen Xers: The younger cohort started saving at a median age of 23, compared to the Gen Xers' median age of 25.

By making consistent contributions to their retirement plans early in their careers, these savers are giving their investments decades to grow and benefit from compounding interest.

Boosting your 401(k) also means you should be cognizant of how much you contribute. Sticking with contributions set at 3 percent of salary — a common default level for automatic enrollment programs — is too low.

Retirement plan service providers say 15 percent of your salary is a good goal to reach for. That figure includes matching contributions from your employer.

"Have fun within reason."

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"These millennials are still having their cold brew coffee," said Patterson.

Saving prudently doesn't mean that you live off of bread and water. These "Super Savers" still allowed themselves the occasional indulgence.

Just over half of the participants said they splurge on travel, while 44 percent said they would treat themselves to subscription entertainment services, including Netflix and Hulu.

Responsible consumption is the name of the game for these savers. These individuals might opt for taking their vacations locally so that they can have fun within reason, said Patterson.

About 7 in 10 said they had no formal budget. Instead, nearly 60 percent use a spreadsheet to keep an eye on their expenses.

"There's no secret rocket science; it's just practical decisions," said Patterson. "Sometimes making the littlest decisions can make the biggest difference."

"Make practical decisions on sacrifices."

Know where to cut.

Four out of 10 savers said they curtailed their travel plans in order to squirrel away more cash for retirement.

Nearly as many said they were driving older cars, while 33 percent said they owned a modest home.

Here's where the sacrifice can do some damage: Forty-four percent of savers said they experienced high work-related stress along with the desire to max out their savings.

"Millennials know that if they don't do it — if they don't save for retirement — it won't get done," said Patterson.

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