Were your parents right when they told you start saving for your retirement in your 20's?
Would you be surprised to learn that Millennials are effectively saving more for retirement than any other generation? Millennials are categorized as those being born between 1981 and 1997, and have gotten a lot of bad press lately for “killing” certain industries. For instance, they have popularized ride share services over traditional cab services and Airbnb rather than traditional hotel rooms. While there might be some truth to the claims about the millennial group wasting on some things, a large portion of them are actually planning far ahead for their futures, especially when it comes to their retirement. Whatever you might believe about their financial habits, some millennials at least are sitting on six-figure retirement funds, according to a report by Business Insider. This is likely due in part to the Economic crisis of 2007 which left so many Americans saving in tatters. It is true that on average Millennials have started saving earlier than any other generation thus far, starting at 22 years of age, though on average the Baby Boomer generation still widely saves more per paycheck than any other generation. A recent study found that 81% of millennial workers are currently saving for retirement in some capacity, compared to only 74% of Gen-Xers and only 77% of baby boomers.
According to an article written by Business Insider, Millennials are saving twice as much as baby boomers, especially if they have children. In fact, Business Insider stated that US millennial parents are “on track to be richer in retirement than the typical Gen-Xer or baby boomer with kids”. In a Fidelity Investments analysis of 59,000 millennials, those who have participated in their company’s 401(k) plan for 10 years, the average balance was $109,400 at the end of June 2017. We are talking about those between the ages of 20 and 36 years old. Though it also remains true that parents are more prepared for retirement than non-parents are, millennial parents seem to bump their savings contributions in relation to life events, such as when a child is starting school, if they attend a regular public school instead of private education, chalking away that extra money they were spending on daycare or preschool costs. Or landing a higher paying job.
Here is what we can learn about retirement savings:
Overspending leads to under saving. The biggest step in getting prepared for your future savings is to really take a hard look at your recurring expenses. How much money goes out the door each month, including living expenses, and Monthly/Annual subscriptions? One month of too-high expenses might not make or break you, but a pattern of overspending very well could. The more money you spend each month the less money you are putting towards your savings, and thus your retirement fund.
Make a plan. Research has shown that people are more likely to follow through with something if they set up a plan to follow. The same goes for your retirement. If you create a plan for your retirement you are more likely to feel confident in going forward as well as seeing the risk of what may happen if you don’t start saving up now.
Regular contributions add up. Saving slowly, while keeping expenses low will generally get you where you would like to go. Start saving early to build your funds and you will not need to stress about the future. Remember that slow and steady wins the race.
Make it automatic. One of the 401(k)’s best features is automatic salary deferrals, where contributions are automatically pulled directly from the paycheck. In many cases, employers also opt new hires into the company’s 401(k) by default. If you do not already have this setup, it may be worth talking with HR director on how to get this setup for the future. If its already taken out of each paycheck you wont really notice the difference.
Your retirement comes before the kids’ college. More millennial parents list college or private-school tuition as top long-term savings goal. While that may sound like a good idea, for those who have limited resources, retirement and college savings should not be considered equal priorities. Saving for your own retirement should take precedence. However, if this is something you would want to do, you may want to speak with your advisor about a retirement savings options that may work best for your individual circumstances.
Try to limit your outside expenses as best you can. Maybe skip that Starbucks coffee run a couple times a month. Bring a sack lunch, or plan when you are going to go out to eat ahead of time, make eating out an experience or celebrate a special occasion with a loved one or friends- not just because its Friday and you don’t feel like cooking.
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