Millennials Saving for Retirement
According to the research, millennials are more concerned about their financial future than past generations- yet over half are living paycheck-to-paycheck without saving any money for retirement. While there may be a slight knowledge gap to blame for this disconnect, there’s a bigger factor at play: debt. In fact, 47% of millennials are using more than half of their monthly income to pay off various types of debt. So how can millennials reconcile their debt obligations with saving for retirement?
First, let’s get into the reasons that millennials don’t currently save money. 84% of millennials reported that they didn’t have enough money to begin saving, while 81% reported having other immediate priorities that required money. 77% reported needing to pay off debts as well.
Millennials aren’t the only ones not saving appropriately for retirement; in fact, 40% of working Americans are not currently saving for retirement, while 25% of American families have no savings at all. Even scarier, 67% of Americans have less than six months’ worth of expenses saved, which is the recommended amount in case of an emergency.
So how can millennials make the switch from living paycheck-to-paycheck to saving for retirement? The first step is simple: just start. When using IRA accounts, millennials can use the expected rate of return on investment to determine how much they’ll make in the long run. After that, how much you make depends on how much you contribute and whether or not your employer offers any sort of contribution matching. A rule of thumb to follow? Take your expected rate of return and divide it by 72 to find how many years it will take to double your money.
Sure, many millennials may think it’s acceptable to put off saving for retirement in order to address more immediate needs and pay off debts and loans. However, the scary truth is that relying on Social Security won’t give you the most stable retirement. Experts recommend that retirees live by the “4% rule”- withdrawing no more than 4% from savings each year after retirement. If you were to retire with $100,000, that works out to living on $333 per month.
In order to avoid this less than ideal retirement scenario, millennials need to start saving now. Start by opening an automatic savings program and depositing a minimum of $25 each week. Millennials can also afford to be a little aggressive in their investments since they’ll be saving for long enough that the ups and downs of the market won’t significantly affect their savings in the long run. Make sure to save at least six months’ worth of living expenses in case of an emergency, and get professional financial advice from trusted advisors.
The earlier you start saving, the easier it becomes. Begin your saving journey today by talking to a financial advisor or trusted friend or family member to discuss how you can prepare for the future by starting today.