Millennials and Retirement
Submitted by Kaizen Financial Advisors, LLC on October 30th, 2015Retirement—financial independence—is a fundamental goal in financial planning. Today, baby boomers think about retiring between age 62 and age 65, and few consider working beyond age 70. But according to a recent Reuters report, millennials are likely to have to work until an average of 75 years old, 13 years longer than retirees today.
Why?
College debt. Most young people graduate with significant college debt and pay, on average, $4,239 per year towards those loans. That's $4,239 not going into retirement savings or mortgage payments.
Renting. Speaking of mortgage payments, millennials aren't buying into the real estate market as enthusiastically as their predecessors. Instead, they're staying in the rental market longer, and while they enjoy the freedom of the manager fixing their leaky washing machine, they miss out on building home equity and mortgage-related tax deductions.
Solutions
Invest aggressively. Young people do have an advantage when it comes to saving: They have a long time horizon. This means that investing aggressively can pay off for them, and bumps in the market are less likely to harm them in the long-term. Unfortunately, many young people keenly remember the 2008-09 financial crisis, and as a result tend to invest too conservatively to achieve retirement goals. They need encouragement to take cash out of that savings account and put it into long-term equities.
Additionally, young people need to be maximizing retirement savings as early as possible. This means maximizing 401(k) contributions to take advantage of any employer matching of worker contributions; and contributing to a Roth IRA regularly, and, when appropriate, to a traditional IRA. IRAs become particularly crucial when young people work for employers who don't offer a 401(k) plan.
Save on rent. Parents of millennials can tell you this already: Their kids are staying at home longer. Rightly so—by staying with Mom and Dad rent-free until age 25, young people can hope to retire closer to age 70 than 75.
Make a plan and stick to it. In general, young people benefit from cutting debt, investing aggressively, and saving into an emergency fund. Because each situation is unique, individuals benefit from working with a fiduciary advisor to develop a plan appropriate to their finances.
Enjoy your job. If you're looking at another 50 years in the workforce, you might as well find something you like doing. Young people are more likely than their elders to change jobs, and each change can boost salary and benefits as well as expanding a professional network and providing on-the-job learning opportunities.
Sources
- Rebell, Bobbi, Reuters, "YOUR MONEY-For college grads, 75 is new 62 for retirement planning"http://www.reuters.com/article/2015/10/21/retirement-millennials-plans-idUSL1N12K2GJ20151021
- Dowdy, Landon, CNBC, "Job hopping can boost your career if you do it right"http://www.cnbc.com/2015/09/15/job-hopping-can-boost-your-career-if-you-do-it-right.html
- Casselman, Ben, FiveThirtyEight, "Enough already About The Job-Hopping Millennials" http://fivethirtyeight.com/datalab/enough-already-about-the-job-hopping-...