Millennials Are Out-Saving Boomers, Analysis Shows

Millennials come in for their fair share of criticism, especially in terms of money. The stereotype says they overspend and waste cash on things like takeout coffee and avocado toast. But -- like many generalizations -- it turns out those criticisms are both unfair and unfounded.

Many millennials have managed to save money in spite of some significant economic headwinds. And while, at points, they have been behind other generations financially, several studies say they're now beating boomers. Particularly on retirement and brokerage account contributions.

Millennials are better prepared for retirement than boomers

Vanguard's Retirement Outlook report looks at how ready different generations are for retirement. Worryingly, it shows many people will find it hard to sustain the same living standards once they stop working. Lower-income groups of all ages face the biggest issues.

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Vanguard calculates what percentage of people's pre-retirement income they can expect after leaving the workforce. It says:

• Mid-earning millennials can count on having about 58% of their pre-retirement earnings. Boomers in the same income bracket are looking at just 50%.
• Higher-income millennials are on track to have 66% of their pre-retirement earnings. Boomers in the same income bracket are looking at just 51%.

This isn't the only research that puts millennials ahead. A recent Morningstar study showed that baby boomers and Gen Xers are more likely to struggle in retirement than other generations. That said, it isn't a competition -- what matters is that you feel confident about your retirement, whatever your generation.

Planning for retirement

There are always so many demands on our time and money, retirement planning often gets pushed to another day. A good place to start is to estimate how much income you'll need.

A common financial rule of thumb is to aim for 70% to 80% of your pre-retirement income. Social Security will replace some of it, but the rest will need to come from your investments and retirement savings.

You can work backward from there to figure out how much money you need to have saved. Use a retirement calculator to play around with the numbers. Having a specific target makes it much easier to save and map out your investing needs.

Three low-stress ways to boost your retirement savings

Don't put off saving for retirement. Look over your recent spending today and work out how much you can put aside for your autumn years.

1. Max out your 401(k) contributions

One reason millennials are ahead of boomers is that many have benefitted from automatic enrollment in workplace plans such as 401(k)s. In addition to tax breaks, the great thing about a 401(k) is that a lot of employers will match at least some of what you put in. Those company contributions are extra cash for your senior years.

2. Contribute to an IRA

401(k)s aren't always an option. But there's an IRA out there to suit nearly every American. The two most common types are traditional IRAs and Roth IRAs. Traditional IRAs will help to reduce your tax bill today. Roth IRAs work a bit differently. You invest money you've already paid taxes on, but make tax-free withdrawals later in life.

You'll also find SEP and SIMPLE IRAs for small businesses and freelancers. You can have more than one IRA, but there's a limit to how much you can contribute in total each year.

If you're thinking about opening one, check out our top brokerages for IRAs.

3. Build a diversified portfolio

The idea of picking investments can be daunting, but it doesn't have to be. If you don't want to research individual stocks, an index fund or exchange-traded fund (ETF) that tracks the S&P 500 can give you exposure to the 500 biggest companies in the U.S. History shows us they've averaged solid returns.

You might also look into funds that focus on dividend-paying stocks or real estate. The advantage of ETFs is that they pull together a mix of securities, making it easy to diversify your investments. Understanding your risk tolerance will help you get the right mix of assets.

Consider speaking to a financial planner if all of this feels too much to do on your own. They can help you create and manage your retirement plan. That includes working out how much you'll need to save, how you'll get there, and getting the right balance of assets in your portfolio.

Retiring isn't a competition

It can be interesting to compare the finances of different generations. But every individual is different, no matter what year they were born. Consider how you want your retirement to look and how much money you'll need to finance it. Once you have a target, you can work toward it. The earlier you're able to start investing, the longer those investments will have to compound.