We millennials get a bad rap. So, I think we should finally set the record straight.
For starters, we’re often viewed as entitled, lazy, and obsessed with technology. It’s also believed that we demand constant praise and lack social media etiquette. And, are single-handily responsible for killing a plethora of businesses.
Oh, yeah. We’re also constantly being confused with Zoomers, aka Gen Z.
What’s not a myth though? We’re not prepared for retirement. In fact, even though eight in ten of us claim to have money saved for retirement, just 46%t have saved less than $10,000.
Because we’re straight-up frightened of retirement.
Obviously, we’re not the only generation that has dealt with this. After all, America is facing a major retirement crisis — regardless of demographics. As David Gellar explained in a previous Due article, the main reason is that “three pillars of retirement — private savings, pensions, annuities, and Social Security — are showing cracks.”
Additionally, we’re all concerned about embarking on the great unknown. “Many people are nervous about retirement,” adds Gellar. “They see it as an ‘it’s all downhill from there’ situation, envisioning declining health, approaching death and impending social isolation.”
In reality, that’s not always the case. “Retirees live extremely full, rich lives. However, it’s hard to envision happiness in a situation you’ve never experienced.”
But, as Hobbes mentioned, our generation is in a unique situation that’s left us anxious and pessimistic about the future. Because of this, it’s easy to understand why we’re scared of retirement.
But, let’s take a closer look at why we feel this way.
“Millennials entered the workforce during or in the wake of the Great Recession,” write Christine Elliott & William Reynolds III in The Atlantic. “Among Millennial college graduates, unemployment and underemployment, at 8.8 percent and 18.3 percent respectively, are historically high compared with the same age cohort in prior generations, and wages for employed Millennials have dropped 7.6 percent since the onset of the Great Recession.”
And, that was before COVID.
We’ve been the group that has been impacted the most by the economic turmoil of the pandemic. For example, 30% of us between ages 30 and 49 have either lost a job or has had someone in our household who has.
What’s more, the Bureau of Labor Statistics states that for those who are unemployed, millennials are dealing with longer-stretches of joblessness. And, this is particularly a problem for people of color.
According to a report published by the Organization for Economic Cooperation and Development (OECD), the middle class is on the decline. For instance, 60% of millennials are considered middle-class compared to 70% of baby boomers.
The reason? For starters, on average earnings have stagnated. Median wages have only risen 0.3% per year between 2007 and 2017.
Meanwhile, the rich keep getting on accumulating wealth.
“Current findings reveal that the top 10% of in the income distribution holds almost half of the total wealth, while the bottom 40% accounts for only 3%,” the OECD reports.
To make matters worse? The cost of goods, housing, insurance, and college tuition keeps on rising. Housing prices, as an example, have grown “twice as fast as inflation and one-and-a-half times faster than the household median income.”
As if being unemployed or underemployed wasn’t stressful enough, we’re also freaking out about debt. The main stressor? Student loans.
Student debt “now comprises 69 percent of the debt side of their balance sheets” for an average 25- to 30-year-old American, reports to the Federal Reserve Bank of New York. On average, we’re carrying student debt of around $33,000 dollars for each borrower.
“It’s not just student debt but also the persistent presence of credit card debt that is impacting” both millennials and Gen Z “at every life stage,” said Diane Ty, senior partner at Business for Impact and interim director of the AgingWell Hub. “Servicing monthly debt means less ability to start saving for retirement when time is on your side or building other assets like homeownership.”
Data analyzed by The Pew Charitable Trusts shows that 35% of private-sector workers over the age of 22 don’t work for a company that offers a defined contribution plan or a traditionally defined benefit plan.
“Forty-one percent of millennials who are at least 22 have no access to either type of plan through their employers, compared with 35 percent of Gen Xers and 30 percent of baby boomers,” the reports adds. “Part of that can be attributed to the type of work. Millennials have faced challenges finding jobs that offer retirement and other benefits, while lower-wage jobs are less likely to come with retirement benefits.”
So what if you don’t work for someone who offers a retirement plan? You still have Social Security to fall back on, right?
Not so fast.
Depending on who you ask, the Social Security fund could run out between 2028 and 2035.
“The reality is today every dollar that goes into Social Security immediately goes out the door to current retirees. It never has a chance to earn a positive rate of return over time,” said Rachel Greszler, a senior policy analyst at the Heritage Foundation, a conservative think tank.
“That has really negative consequences if you look over decades of not being able to invest the money that is set aside,” she added. “When you look at pension programs, about two-thirds of the assets in there are actually investment returns. And so you’re stripping that opportunity away from workers.”
While concerning, it’s unlikely that Social Security will completely run out of money. It does mean, however, that we’ll receive a portion of the promised benefits.
“Intimidation is one simple reason people often procrastinate contributing to their retirement plans or don’t pick investments properly,” writes author and financial blogger Erin Lowry. “I remember feeling overwhelmed the first time I signed up for a 401(k) and was met with a long list of investment options.”
“Strange words I’d never heard of like midcap, large-cap or Dodge & Cox floated in front of my eyes, and I did what most people do when stressed by something on the Internet: I closed the browser,” adds Lowry. “There was no context about which investments were best for my risk tolerance or time horizon (nor did I have any clue what those terms meant at the time). I’d never learned about investing. I, a then-23-year-old, was supposed to be able to intuit which funds to pick in order to build a well-balanced portfolio aligned with my goals.”
“Or, more appropriately, I was supposed to do the research required to build a portfolio,” she states. “But that can be an overwhelming proposition, especially to someone with no education in investing or even a basic understanding of the terminology.” No wonder “people often delay investing for retirement or slot it on the bottom of their to-do lists.”
Taking into account all of the above, many of us may have no other option than to delay our retirement contributions. Furthermore, because the outlook is grime, why worry about tomorrow when you’re struggling to just get through today?
When it comes to retirement, there’s a reason why we’re scared of it. But, it’s not all gloom and doom. For example, according to Bank of America’s Better Money Habits Millennial report;
Even though we’re financially behind, all hope is not lost. We’re being practical and disciplined about our money. And, we’re still contributing to some sort of savings account.
But, here are some other pointers on how we can stop panicking about our retirement.
Let’s be frank. Who gives a flying burrito about retirement when you’ve got student loans to pay back? There are, however, plenty of ways for you to pay these loans off faster.
You can use most of these strategies on any debt that you have. Once you’re free from this burden, you can start throwing money towards your retirement.
If you haven’t done so yet, start putting money into a 401 (k). If you’re on a tight budget, put in whatever you can — whether if it’s $50 or $100 per paycheck. I’d also suggest that you set-up automatic contributions so that this money is taken from your paycheck and placed into your 401 (k). It’s a simple way to prevent you from spending it on something else.
Regardless if you have a 401 (k) or not, you should also consider a Roth IRA.
“These accounts can be funded up by anyone with earned income, which is income from a job or self-employment,” explains Alicia Dion in another Due article. “Things that don’t qualify as earned income are interest, dividends, alimony, child support, and social security.”
“Opening up a traditional or Roth IRA is not difficult, and it isn’t something that should intimidate you!” adds Dion. “You open your account with a custodian, like Vanguard, Fidelity, or Charles Schwab. Most custodians offer free account opening, no minimums, and free trading.” And, most Roth IRA “accounts can be opened online, in less than 15 minutes.”
“Some people fear to invest heavily (or at all) in stocks because they’ve seen what happens during those volatile periods when the market plunges — or what they think happens,” writes Maurie Backman for The Motley Fool. “While it’s true that the stock market does have money-losing periods — it goes down about one year out of three — it also has a history of recovering nicely from those downturns.”
“For millennials who are investing for retirement — a goal that could be 30 years away or more — there’s plenty of time to hold on to your stocks, ride out the market’s ups and downs, and come out ahead,” adds Backman.
“So what percentage of your retirement portfolio should be in stocks?,” asks Backman. It’s suggested that you “subtract your age from 110. Thus, if you’re 30, you should have 80% of your portfolio in stocks, the rest in bonds and similarly conservative investments.”
You can still have fun right now. As long as you have your priorities covered, think mortgage/rent, groceries, transportation, and savings, you can add in lines for additional categories like vacations into your budget. Using apps like Acorns or Qapital can make this easier through round-ups, schedules, and even fun — like putting a dollar into your savings account whenever Marvel announces a new project.
Don’t feel guilty if you’ve been putting off your retirement savings. But, that doesn’t mean that it’s too late to get started. If you stick to your budget and eliminate your debt, you can hopefully make up for lost time. Also, after the age of 50, the IRS does permit catch-up contributions
Don’t be afraid to speak with a financial advisor. They can help you set goals and a blueprint on how to make them possible. They can also offer advice on how to create a more effective budget and how you can build your wealth.
Finally, re-envision your retirement. Maybe you aren’t going to retire completely and travel the world. But, you could still work part-time and be plan more realistic trips that are within your budget.
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