This Generation Is Most Convinced It Will Outlive Retirement Savings
According to new research from Northwestern Mutual, half of millennials don't have confidence in their retirement savings. Between rising costs, shaky job markets early in their careers and warnings of a Social Security crisis, it’s no surprise that millennials are more anxious than most about whether their money will last in retirement.
But is that fear grounded in reality or something else entirely? Financial experts weigh in.
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Why Millennials Feel More Anxious About Retirement Than Any Generation
The millennial generation has had to navigate more uncertainty while taking on more personal responsibility for saving and investing than any generation before it, according to Carroll Golden, executive director of the National Association of Insurance and Financial Advisors’ knowledge centers.
Additionally, their anxiety may be a result of the “negative messaging” in the media about the “retirement income crisis,” said Robert R. Johnson, CFA and professor of finance at Creighton University. They see people working well past retirement age, “not because they choose to work, but because they need to work,” and fear this will happen to them, too, he said.
The Real Financial Pressures Holding Millennials Back
Structural financial pressures have also made it harder for millennials to build wealth early, when compounding matters most, Johnson said. “Saddled with student loan debt, many ... find themselves unable to accumulate wealth because of the burden of repaying student loans.”
Indeed, the average student debt is around $30,000 according to David Kindness, a CPA, tax expert and personal finance writer at BestMoney. “That means part of their paycheck goes to loan payments instead of savings … Because of this, many millennials have saved less money than older generations did at the same age.”
Golden described it as a “three-way squeeze,” noting that “when debt service, rent and housing costs absorb the years when compounding should be doing the heaviest lifting, retirement saving often gets postponed.”
Is the Fear of Running Out of Money a Real Concern?
There is a legitimate reason to be afraid, Johnson said, but that reality depends on individual habits, such as whether they have debt, healthcare coverage and are already saving for retirement.
“Once one gets to retirement age and hasn’t accumulated enough retirement savings, one only has two options left— continue working or accept a lower standard of living in retirement — and neither of them are good,” he said.
Given that studies show that four out of 10 millennials may not have enough income in retirement if they do not change their savings habits, Kindness pointed out, millennials should prioritize saving as soon as they can.
The Biggest Risks That Could Make This Fear a Reality
One of the biggest mistakes millennials can make is “turning down free money” by not contributing enough to get the employer match that many employer-sponsored 401(k) plans offer, Johnson said.
And, if millennials aren’t growing their money in some way, through retirement plans, money market accounts and high-yield savings, to name a few, Kindness warned, “then slowly but surely inflation will erode its value.”
What Millennials Can Do Now To Avoid Running Out Of Money
The good news is that even small, consistent changes can significantly improve long-term outcomes.
Steady, automated retirement increases of 1% to 2% every year are the way to go, Golden said. However, the more you can save, the better.
The two most important elements for successful retirement planning are time and consistency, Johnson stressed.
Why Social Security Won’t Be Enough — But Still Matters
Many millennials worry Social Security won’t exist by the time they need it, but Johnson said it’s more likely to be reduced than disappear altogether.
At any rate, Golden said that “Social Security should be treated as a foundation, not a full solution.”
There’s Still Time To Save
Millennials’ fear of outliving their retirement savings is rooted in real financial challenges, but it’s also highly fixable. Save consistently and let compounding do the heavy lifting.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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