There are several reasons that Millennials should start saving for retirement. Retirement is a relatively new term in a historical context. Social Security didn’t even start until 1935.
Millennials are the first generation that is really going to have to focus on saving for retirement. Pensions are very rare now and the ones that are still around, do not look promising for the long run. Same goes for social security, it is expected to be depleted around 2035.
Millennials will not even be at retirement age by then. If something doesn’t change soon, social security and pensions will be a thing of the past.
Millennials should start saving for retirement now for several reasons. First of which is that there may not be another option when they reach retirement age. Even for the few of us that have a pension, you can’t count on it. Now if social security and/or a pension is available once you retire it should be extra. You should start planning like neither of them will be available when the time comes.
The average payout for those collecting social security is only $1100 a month. Could you live on $1100 a month? Not many people can live comfortably on that amount. Most people can’t even rent for that amount let alone pay for utilities, food, gas, or any other expenses. Even if you were completely debt free, house and all, could you afford to live on that amount? Probably not after you figure in-house insurance and taxes, health insurance, property taxes for vehicles, utilities, home improvements, or emergencies.
You may be thinking, “I’m going to work forever!”. I hope that you are saying that because you love your job not because you don’t think you will ever be able to afford to retire.
There is always the chance that you will get hurt and can’t work until the age of 70 to get the full benefit of social security. Most people don’t know that 70 is the age to get the full benefit either. If you start to draw from social security before then, you are only getting a percentage of your benefits. If you do get hurt, it can also take YEARS to collect for a disability and you will still have bills to pay in the meantime. Most people get denied for disability several times before they get approved and they typically have to get a lawyer during the process, which will also cut into what you receive.
Another reason that Millennials should start saving for retirement now is the beauty of compound interest. Compound interest works because of time. You save the money, leave it alone, your money earns interest and then the interest earns interest. I always love this illustration:
This is a simple example but it works. The earlier you start investing the more money you will have when you do go to retire. Now, don’t let this discourage you if you haven’t started yet. It’s not too late to start, you just will have to invest more to make up the difference. I would still like to have $1.5 million over nothing.
What About Your Family?
Something else to think about it that your parents and/or grandparents probably aren’t saving for retirement. Are you going to feel obligated to help them through their retirement years? You will not be able to do that with social security. I know that it’s not an ideal situation but unfortunately, the majority of Americans have not saved enough for retirement.
Only about 22% of Baby Boomers have more than $300,000 saved and only 12% of Generation X’ers have $300,000 saved. The majority of those 35 years and older have nothing saved, yes nothing. Those that have something saved, have saved less than $10,000. I don’t know about you but $10,000 isn’t going to last very long for me. The sad thing is, is that the majority of Americans don’t feel that saving for retirement is important. That means that Millennials are going to have to pick up the slack.
The flip side of that is that you will not have to rely on your kids during your retirement years. Do you want to be a burden on your family? Will your kids even be able to care for you once you retire? Or would you rather leave your kids a legacy? If you save for retirement, you have the potential to leave your kids a financial legacy that could last generations. If you don’t want to leave the money to your children, you could always leave it to a charity or put it in a trust to benefit your family without risking them wasting it all.
Do you want to be able to live and do whatever you want once you retire? Do you want to retire at 60 instead of waiting until your 70 or older? Have the desire for a beach house or want to travel the world? If you prepare and save now, you can do what you want later. These things are very possible if you start now. You do not have to make a million dollars every year to do those things. It just takes focus and planning. It takes a written plan and prioritizing your spending. If you make saving automatic, you are less likely to spend it on eating out and stuff you don’t need now.
You should be saving at least 15% of your gross pay for retirement. If you are not sure how to do that, contact a financial advisor. There are lots of options out there and it can get confusing. It is important to have someone that knows what they are doing, guide you through the process. This doesn’t mean that you just hand them your money and walk away. It is still your responsibility to learn and know what you are doing with your money. You should find an advisor that can and will take the time to teach you and help you through the process.
This was a guest post written by Ashley Rose who runs Budgets Made Easy,
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