How millennials got a six-figure start on retirement saving

If you have read the latest headlines, you know millennials get a mixed financial rap. Some reports say they are throwing their money away on avocado toast and dining out, while others claim they are killing the earnings of restaurant chains by cooking at home more.

Whatever you believe about their financial habits, some millennials at least are sitting on six-figure retirement accounts.

In a Fidelity Investments analysis of 59,000 millennials — those born between 1981 and 1997 — who have participated in their company's 401(k) plan for 10 years, the average balance was $109,400 at the end of June 2017.

This isn't thanks to rich parents. These savers can't all work in investment banking. And odds are that at least some have student loan balances. Rather, the common thread — and secret to a fat 401(k) — is consistency.

If you steadily save a reasonable portion of your income over a long period of time, you are going to end up with a pile of money.

"Saving slowly and methodically while keeping expenses low will generally get you where you need to go," said Timothy J. LaPean, a certified financial planner in Minneapolis.

"You don't need to shoot for the sky. All you need is a long series of incremental wins."

Financial planners commonly use that 15 percent figure as a retirement savings goal. That means more than two-thirds of these millennials aren't saving "enough" by most standards — or even close to it. The average contribution rate for the group is 7.5 percent.

Millennial thousandaires have also been helped along by one of the 401(k)s best features: automatic salary deferrals, in which contributions are pulled directly from their paychecks. (In many cases, employers also opt new hires into the company's 401(k) plan by default.)

"Human beings on the whole are not built to be good at saving, and the best approach is one where you never really see the money in the first place," LaPean said, noting that many employers let you mimic that automation by dividing your check among two or more accounts, including an individual retirement account.

That's a good option if you don't have a 401(k) or you are already contributing enough to earn your plan's employer match. As for where to send that money, you can contribute as much as $5,500 each year to a Roth or traditional IRA. If you freelance or have a side gig, a SEP IRA is specifically for self-employed workers and may allow you to save more than that. You can contribute to a SEP IRA even if you are also a W-2 employee, said Sarah Hodge, a certified financial planner in Boston.

The millennials in Fidelity's analysis saw nearly a 32 percent compound annual growth rate, the average amount the account grew each year, over the 10-year period reviewed. Fidelity said about 60 percent of that was thanks to their own actions — those consistent contributions — and the rest because of market returns.

If you are not sure how to invest or how much risk you can tolerate, consider using an automated investment manager or putting your retirement savings into a target-date fund. Both will allocate your money according to your age and expected retirement date. Some companies also provide employees with retirement planning guidance.

"The first step toward saving enough for retirement is to look at your recurring expenses," LaPean said. "Can they be lower? Are you spending on anything that is both nonessential and unlikely to improve your long-term joy?"

One month of too-high expenses might not make or break you; a pattern of overspending very well could. High expenses, LaPean noted, make it harder to save and drive up the amount of money you need to save, because you'll likely want to maintain that standard of living in retirement. Keeping costs down means you will need less money for retirement and your budget will have some breathing room to meet your goals.