With the economy in a constant state of chaos as inflation reaches a 40-year-high, it’s becoming increasingly difficult for Millenials to make the most of their finances, and the student loan debts they’ve accumulated aren’t helping.
Currently, the generation is considered to be extremely entrepreneurial, and they’ve shown their resolve when it comes to saving for the future, but they still find themselves behind on their retirement funds when compared to previous generations.
They do, however, have an upper hand on Gen X-ers, due to increasing their savings rates from 7.5% to 9.7% on average.
In order to understand exactly why this lag is happening, savings director at the Center for Retirement Research, Angie Chen, dug deeper into this issue, comparing Millennials with previous generations like the Baby Boomers who have amassed great fortunes through their savings accounts.
She found that Millennials fall behind not only in savings but also in the labor force, homeownership, and marital status, although two of the 3 can be attributed to the unfavorable position the economy has put them in.
Another big issue is that a large portion of Millenials graduated during a massive economic downturn, forcing them to take lower-paying jobs, despite having higher college education rates than previous generations, on average.
Student loan debt takes center stage
As it turns out, the primary reason for millennials’ low savings rates is student debt which often amounted to 40% of the income of those between the ages of 28 and 38, but these people are still somewhat fresh into their careers, so only time can tell.
The next issue that arises from this is that this generation has a longer life expectancy than previous generations, drastically increasing the amount of accumulated wealth needed to carry them through their retirement years.
Most financial „experts” will claim that millennials’ lack of retirement savings can be attributed to their „overspending”, and a number of other, more systemic factors, weigh in on their inability to save for the long term.
Millennials and Retirement Savings: What are the Challenges?
A 2014 survey showed that only 55% of Millenials were able to participate in a retirement plan through their employers, which pales in comparison to the 77% and 80% rates that applied to Gen X-ers and Baby Boomers, respectively.
With their low wages straight out of college, it seems that the best option for Millenials would be the Roth IRA savings account, as paying tax on your upfront contributions allows your money to grow tax-free over time, with the added benefit of not having to pay any tax when you withdraw your savings.
Roth IRAs are only available to single people making under $144k or married couples jointly making less than $214k. This means that if millenials are able to make their own investments outside of the traditional retirement account, they can really make their money work for them.
The final factor is Millenials’ unwillingess to commit to long-term career goals, which has been greatly affected by increasing job instability in today’s economy. While it may be the best option for Millenials to focus on long-term career goals and thus save for retirement, this may not be the case for everyone.
In conclusion, Millenials need to find a way to balance their student loans with their retirement savings in order to ensure that they will not be living off of Social Security alone during their later years. The idea of budgeting for the future has been around for ages, but Millenials are learning to make it a priority in order to ensure a comfortable retirement. With proper planning and self-discipline, this generation can ensure that they will retire with more financial freedom than the generations before them.