Generation Y Adopting Age-Based Asset Allocation Retirement Programs at a Faster Pace Than Other Age Groups, Fidelity Says
Members of Generation Y appear to be embracing age-based asset allocation retirement programs faster than other age groups, according to an analysis done by Fidelity Investments in the second quarter.
The Boston-based investment firm analyzed the 401(k) accounts of about 2.2 million Gen Y participants – which the company defined as those born between 1979 and 1991 – and found that this age group has stronger adoption of target date funds and Roth 401(k) programs compared with others.
About 67 percent of Gen Y participants are within +/- 10 percentage points of the Fidelity Freedom Fund equity rolldown schedule, which is a gauge used by the company to determine appropriate age-based asset allocation. That compares with just 45 percent across all 401(k) participants, the company said.
Many Gen Y participants achieved the diversification through the adoption of target-date funds, which are often the default option for plans with auto enrollment. For those plans that offer target-date funds as investment options, about half of Gen Y participants allocated all of their assets in a target date fund compared to 30 percent of participants of all ages.
In retirement plans that offer Roth 401(k), usage of the savings option was greatest among Gen Y participants, with 8.8 percent contributing to them, versus 5.8 percent among all active participants.
Fidelity said that in general, the number of employers offering a Roth 401(k) savings option rose to 35 percent from only 10 percent five years ago, and more than half (55 percent) of Fidelity 401(k) participants are in these types of plans, up from 15 percent five years ago.
Overall, employee and employer 401(k) contributions rose in the second quarter, and have been steadily gaining since 2009, the company said.
Fidelity is the largest US provider of 401(k) programs, with assets under administration for retirement and other financial programs of $3.6 trillion.
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