Most millennials, people aged 18 to 34, are unprepared and under educated on the importance of saving for retirement. A survey found that 40% of millennials do not have a retirement savings account, and nearly 75% do not know their own net worth. This is concerning as they are believed to be one of the generations that are going to have the most changes concerning their retirement. Examples include increasing taxes, the disappearance of pensions and the uncertainty surrounding social security. Not preparing for these and other changes could leave millennials struggling to catch up, working longer or forcing them to substantially change their way of life when they finally do retire.
The problem for millennials is that retirement is so far away they cannot realistically comprehend how much they will need in the future, nor understand how much they need to save now to get to that point. There are several reasons millennials are not saving enough for the future. The main reason is that many are burdened with large amounts of student loan debt. Student Loan Hero states that, “The average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year” and “the average monthly student loan payment for borrowers aged 20 to 30 years is $351.” The increase in technology also has not helped. With apps for just about anything, people are now able to buy goods seamlessly moving money from their bank account to the vendor. There is little consciousness about how much they are spending and the amounts quickly add up. Another factor is that millennials are, well, millennials, meaning that they are young and want to have fun. They are more likely to spend their earnings on experiences than sock it away for an event that is not going to take place for another 40 years or longer. All of that combined with the fact that the average millennial salary is hovering around the low to mid $30,000s it becomes easy to see why they are not saving.
The biggest advantage that millennials have over their elders is time. This allows the powerful effects of compounding to take place over many years. The best thing is that to realize amazing results, millennials do not have to be saving a large amount. There are a few things millennials can do to ease into the process of saving for retirement. First, create a budget to see where your money is going and eliminate unnecessary spending. When you list out your expenses you see all of the little things we tend to forget about when we think about our spending. The second, if your employer offers a 401(k) match, you should be contributing up to the match. This is like making a 100% return on your money immediately. This also ties into the idea of paying yourself first. When saving becomes a priority, your budgeting will begin to change, and while at first you may find it difficult, it will soon become just another bill. Another key point is to be consistent. Make these payments to yourself every month, or better yet, set up automatic withdrawals into a brokerage account that will invest a certain amount of money into low cost exchange-traded funds on a monthly or quarterly basis. Over time these small contributions will add up to a comfortable retirement.
If you or anyone you know is interested in starting to save for retirement, we are always happy to discuss further the benefits of saving to help them achieve their financial goals in the future. Please contact us at firstname.lastname@example.org or (610) 825-3540.