While they may have many decades before they want or need to retire, Millennials will benefit greatly when their employers guide them to make smart choices about saving for retirement early in their careers. ADP's annual study on retirement savings trends shows that employees age 20-24, defined as Millennials, defer an average of 4.6 percent of their pay into a tax qualified retirement plan, while employees age 55 and older defer an average of 8.5 percent. The logical explanation for this trend is that older workers simply have more income they can divert to savings. While this fact may never change, it's important to note that Millennials can take steps today to set themselves up for the retirement they want tomorrow.

More than any other generation, Millennials are faced with a confusing choice: Pay off student loans or save for retirement? It would seem smart to pay off those loans first, right? But when employees focus on paying off loans and don't save anything, they miss out on the enormous impact of compounding interest. Consider this example:

At 24, Kelly started a new job and began contributing to her company's retirement plan. Kelly made a monthly contribution of $200 for 10 years, for a total of $24,000, before she stopped contributing to her 401(k) plan. But compounded investment earnings on her contributions continued to grow. At the same age, Michele also started at the same company as Kelly, but decided to wait 10 years to start contributing to a retirement plan. She made the same monthly contribution of $200, but she contributed for 30 years for a total of $72,000.

When the women were ready to retire, Michele had $298,072, but Kelly had $400,138 with the compounded investment earnings from starting early. Michele would have to work well into her 60s or 70s to come close to Kelly's total.*

The message of the example: If you wait even 10 years to start contributing to a retirement plan, you could miss out on many thousands of dollars in retirement savings. The cost of waiting just doesn't add up.

Employers should strongly consider showing employees how compound investment earnings will benefit them. There are other steps employers can take, too, such as offering automatic 401(k) contribution increases each year. Employees can save more this way. In addition, consider offering a Roth 401(k), which will allow employees to withdraw funds during retirement tax-free.

Understanding generational differences can help plan sponsors develop the right strategy for engaging plan participants on saving. What tips do you have for helping Millennials get started saving for retirement?

*This hypothetical illustration assumes pre-tax contributions made at the beginning of the month, an 8% annual effective rate of return, the reinvestment of earnings, and compounding of the accounts over 30 years. Results are for illustrative purposes only and are not meant to represent the past or future performance of any specific investment vehicle. Investment return and principal value will fluctuate and, when redeemed, the investment may be worth more or less than its original cost. Taxes are due upon withdrawal. Withdrawals taken prior to age 59-1/2 may be subject to a 10% tax penalty plus federal and possibly state and local taxes.

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