There is a disconnect with many millennials and saving, whether it be for retirement or simply for the future. I get it. I was young and felt invincible. Retirement seems like a lifetime away. It doesn’t seem important to plan for retirement when you are either starting a family, buying a house, travelling or relishing in your first professional job after college. However, saving for retirement is extremely important and the best time to start is when you are young.
A few reasons for millennials’ lack of saving could be attributed to student loan payments, car payments, rent or mortgage and other monthly bills while earning a lower salary as entry level professionals. They also may not have access to workplace retirement benefits and may not readily contribute to a 401(k) plan. According to Pew Charitable Trusts analysis of Census Bureau data, only 31% of millennials participate in a traditional pension or 401(k) plan through their employer. Also, millennials may change jobs often or work at smaller companies without access to these benefits.
What the rest of millennials don’t understand is that they are in the prime age to start saving for retirement. This is the best time in their lives to start, because their savings will grow and multiply with more years before retirement than someone who starts saving at age forty or beyond. However, they first have to get on board with the concept of saving.
According to Moody’s Analytics, not only are a large percentage of millennials not saving, but people younger than 35 are spending more than they are earning. They are the only age group that has a negative savings rate with a negative 2%. To compare, workers between the ages of 35 and 44 have a positive savings rate of 3%.
There are mixed recommendations on how much to save. The majority suggest a targeted savings rate of 10-15% of their salary will enable millennials to grow a good nest egg for retirement. There are many variables such as employer 401(k) matching, the person’s income, expenses and what type of investment product they have.
There are other factors to consider. Millennials may need to save more based on inflation and the cost of living by the time they reach retirement. Another issue may be possible changes with social security. Millennials would need to save more to make up for the shortfall. A good way to help with this factor is to attain a job with a good 401(k) and company match benefit as well as having a solid retirement plan.
The take home message for millennials is to look at the big picture and know that retirement planning needs to happen. Start saving early and every little bit will add up and make a difference upon retirement. It is a good idea to work with a trusted financial advisor who can guide you through the process and make recommendations geared toward your specific situation.
Do you need help getting started or have questions? Our firm works with clients of all ages and financial experience. Please contact our office at 215.256.7845 to schedule a complimentary appointment and start saving for retirement today.
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