Millennials are juggling different financial obstacles — many of them have already been through a recession, and now, inflationary pressures, soaring rates and a tricky job market are making saving for retirement difficult.
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A recent GOBankingRates survey found that 34% of younger millennials — 25- to 34-year-olds — have less than $10,000 saved for retirement and another 34% say they haven’t even started saving. And for older millennials — in the 35- to 44-year-old age bracket— a whopping 40% of them say they have not even started saving for retirement, and 21% have $10,000 or less saved, the survey found.
Experts argue that there are many reasons for this lack of preparedness, including the fact that they are burdened by debt — mostly student loans — and that they have competing and changing life priorities.
Student Debt
Retirement can feel far away for millennials who are still young and trying to balance many financial priorities, said Rita Assaf, vice president of retirement products, Fidelity Investments.
Asaf explained that first, millennials carry more college debt than previous generations and paying it off can make saving for retirement more difficult.
“However, even saving just a small amount now for retirement can help retirement savings grow long-term,” Asaf said. “A great first step for millennials who are struggling with balancing both priorities is to ensure they meet the minimum payment on all debts and contribute enough through their workplace retirement plan to capture the full company match.”
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Competing Life Priorities
Another issue that might hinder millennials’ retirement savings plans is competing life priorities, Asaf said, explaining that they experience more FOMO than the generations before them.
“And when individuals make financial decisions based on FOMO, they’re thinking more in the short-term and not in the long-term, which may explain why some millennials are delaying saving or not saving enough for retirement,” she said.
Changing Life Priorities
Finally, changing life priorities — such as marriage, starting a family or changing jobs — are also a factor in why they might not save as much needed or recommended for retirement.
“For one example, many late-twenties/early-thirties millennials are starting families,” said Shyam Pradheep, GM of Zogo. “However, with income-limiting trends like wage stagnation and inflation, the portion of their income they may have otherwise earmarked for retirement is instead being spent on new children.”
Millennials’ decline in retirement readiness has been recently underscored in findings by Fidelity Investments’ Retirement Savings Assessment report.
The Fidelity report found millennials decreased their savings rate in 2022, down by 0.2%, while simultaneously seeing the biggest increase in median incomes since 2020 — up by $12,500.
What’s more, the Fidelity survey found that age-appropriate equity allocations declined for millennials — the generation saw the largest drop, by 2%, which means many may not have the appropriate number of equities when considering their long-term goal.
Asked about the discrepancy between the largest income increase and the least amount saved in retirement, Asaf said higher income levels don’t necessarily correlate to increased retirement savings.
“Especially when there are so many additional factors that could impact retirement savings for millennials, including inflation, housing costs, and other savings goals,” she added.
According to Asaf, while millennials’ incomes are higher, they tend to have more conservative investing strategies, which can impact retirement preparedness.
“When it comes to long-term investing, staying focused on the big picture is critical. In fact, having a plan in place is one solid way to help you weather any storm, as we’ve seen the last few years with the pandemic, inflation and market volatility,” she said, adding that for millennials, a plan for retirement could just be knowing how much to save and which accounts to put that money in.
What Can Millennials Do?
There are several steps millennials can take, however, to bridge the unpreparedness gap, including saving as much as you can, examining your asset mix and re-evaluating your retirement plan.
Asaf said Fidelity recommends saving at least 15% of your pretax income each year; make sure you have the right mix of stocks, bonds and cash based on how far you are from retirement, and your risk appetite.
In addition, “if you are able to, waiting longer to retire has its advantages, including more time to build savings and increased Social security payments,” she said.
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Metodology: GOBankingRates surveyed 1,005 Americans aged 18 and older from across the country on between January 16 and 18, 2023, asking twenty different questions: (1) Do you currently have any form of an emergency fund?; (2) How much do you currently have put away for an emergency fund?; (3) If you faced an emergency (medical, housing, etc.) how would you have to pay for it?; (4) How much do you currently have saved for retirement?; (5) Do you have any of the following debt? (Select all that apply); (6) How much debt (student loans, medical, auto/personal loan, credit card, etc.) do you currently have? (NOT including mortgage); (7) If you have a significant other, how much do you argue about money concerns?; (8) Which money topics do you discuss with your children? (Select all that apply); (9) How often do you discuss personal finance issues with your family and/or friends?; (10)What are the chances, in an average month, of you and your family running out of money before you are paid next?; (11) What worries you most when it comes to your personal finances?; (12) Compared to pre-COVID (before March 2020) are you more or less confident in your personal finances?; (13) If you received an unexpected bonus of $5,000, what’s the first thing you would do with it?; (14) If you won the lottery ($100 million), which of the following would you do with the winnings? (Select all that apply); (15) Would you rather…ask a family or friend to borrow money or max out a credit card?; (16) What would you like to learn more about in order to improve your personal finances?; (17) Do you consider yourself a spender or a saver?; (18) Which categories do you believe you overspend on? (Select all that apply); (19) How much do you spend on self care monthly?; and (20) What is your top financial priority?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.
This article originally appeared on GOBankingRates.com: 3 Reasons Millennials Aren’t Saving Enough Money for Retirement
I bring to the table a wealth of expertise in the field of personal finance, retirement planning, and economic trends. My comprehensive understanding of the subject is rooted in both theoretical knowledge and practical experience, having navigated various financial landscapes and staying abreast of the latest developments. As an enthusiast dedicated to empowering individuals with financial acumen, I aim to shed light on the challenges faced by millennials in saving for retirement, drawing upon the information presented in the provided article.
The article discusses the financial hurdles that millennials encounter, with a particular focus on their struggles to save for retirement. The following key concepts are explored:
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Survey Findings:
- A recent GOBankingRates survey reveals that a significant portion of millennials face challenges in saving for retirement.
- Statistics indicate that 34% of younger millennials (25-34 years old) have less than $10,000 saved for retirement, and another 34% haven't even started saving.
- In the 35-44 age bracket, 40% of older millennials haven't started saving, and 21% have $10,000 or less saved.
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Factors Contributing to Lack of Preparedness:
- Student Debt: Millennials carry substantial college debt, primarily in the form of student loans, making it difficult to prioritize saving for retirement.
- Competing Life Priorities: Millennials face the challenge of balancing various financial priorities and experience a fear of missing out (FOMO), leading to short-term decision-making that may impede long-term retirement savings.
- Changing Life Priorities: Life events such as marriage, starting a family, or changing jobs impact the ability to save adequately for retirement.
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Impact of Economic Trends on Savings:
- The article highlights the impact of economic trends on millennials' retirement readiness, emphasizing factors such as inflation, housing costs, and other savings goals.
- Despite an increase in median incomes, millennials have decreased their savings rate, and age-appropriate equity allocations have declined.
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Expert Advice and Recommendations:
- Experts, including Rita Assaf, vice president of retirement products at Fidelity Investments, provide advice on overcoming these challenges.
- Recommendations include making minimum payments on debts, contributing to workplace retirement plans to capture full company matches, and adopting a long-term perspective in financial decision-making.
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Steps for Millennials to Bridge the Gap:
- Fidelity recommends specific steps for millennials to enhance retirement preparedness, such as saving at least 15% of pretax income annually, optimizing asset mix based on risk appetite, and considering delaying retirement for increased savings and Social Security benefits.
In conclusion, my in-depth understanding of the intricacies of personal finance enables me to dissect and analyze the challenges presented in the article, offering valuable insights and actionable recommendations for millennials striving to secure their financial future, particularly in the realm of retirement planning.
