This post is part of our series 7 Weeks to Your Best Finances.
This series is meant to serve as a 7-week path to improving your finances. It will cover all the important topics like starting a budget, saving money, making money, investing, and more.
To find out more and see all the tips and ideas for improving your finances check out the dedicated 7 Weeks to Your Best Finances page.
Millennials tend to get a bad rap when it comes to how they manage their money. Are we really as bad as people say we are?
We all get harped on for our seemingly poor money management skills, but in reality, times have drastically changed from when our parents were our age. Not only was the adjusted starting salary higher in 1975 than it is today, but the cost of living was much lower. And student loans? Forget it. Between 1971 and 2012, the annual tuition rate has exploded by 259%.
Frankly, millennials, aged 18-35, just can’t keep up. We are being crushed by student loan debt, making less, and having to adjust to a higher cost of living. How can we even think about saving for retirement?
Fortunately, there are some positives to millennial’s retirement savings. Here is the latest research on how well millennials are saving for retirement.
Most Have Not Started to Save
According to a recent study done by Wells Fargo, 41% of millennials have not even started to save for retirement. And to top that off, the same study found that only 52% of millennials are even offered an employer-sponsored retirement plan.
Without an employer matching any contributions, even if millennials are able to save, it’s a slow process. Many millennials are only able to stash away 1-5% of their retirement.
Another reason millennials haven’t started to save is that they lack knowledge about how to actually stash money away for retirement. Many won’t admit it, but the obstacle of filling out paperwork, receiving information from their employer, and choosing the best investment options for them is often intimidating.
Student Debt Plays a Huge Part
According to Student Loan Hero, the average student graduated with just over $37,000 of debt in 2016. With interest rates on student loans often being the same one could expect to earn from a retirement account, paying back student loans is a pressing, and often urgent, priority.
This is where many millennials struggle the most. They aren’t necessarily bad with money, but they do not have enough money to cover their basic expenses, let alone contribute extra to retirement.
So Do Lower Incomes
The median income for millennials across the nation is less than $40,000 a year. So, according to these figures, it isn’t uncommon to find millennials owing as much, if not more, than they make to student loans.
Month to month, this makes saving for retirement incredibly difficult. Student loan debt can easily eat up anywhere from 1/5 to half of an individual’s take home pay.
Lifestyle is Important to Millennials
Though millennials do have a lot working against them, typically, they still have a lot of room for improvement.
Many millennials aren’t willing to sacrifice the lifestyle they want now to invest in their future. They want nights out with friends, the ability to live out on their own, the means to travel, and convenience items, such as Starbucks.
While millennials aren’t necessarily spending out of control, they have priorities other than paying back debt and retirement. They understand that retirement is important, but believe they can catch up on contributions in the future.
Millennials are Optimistic About Their Future
With everything mentioned, millennial’s retirement situation looks fairly dire. It has been discovered, however, that most millennials remain optimistic about their retirement situation.
But how can they? Millennials, though start at a low income, feel confident in the ability to earn more throughout their career. They typically understand the importance of saving for retirement, but realistically don’t have room in their budget to set money aside for it. They believe in the future, their circumstances will change.
What Can Millennials Do to Save More for Retirement?
The good news is that millennials can take control of their retirement right now. By focusing on the following, millennials will be able to free up their budgets to allow for more retirement savings.
- Make More Money
Millennials can focus on earning more money by looking for higher paying jobs, asking for a raise, or starting a side hustle like blogging or freelance writing. - Focus on Budgeting
Even when millennials are spread thin with demanding bills, there is always room for improvement within a budget. Check out our step-by-step guide to budgeting - Crush Student Debt
Perhaps the biggest and most uncontrollable barrier between millennials and retirement is the massive student loan debt they carry. By prioritizing student loan debt and knocking it out of the way, millennials are able to better prioritize retirement in the future. - Educate Themselves
Education is key for understanding how, why, and when to be saving for retirement. Luckily, there are so many resources available, like personal finance blogs and your company and broker’s websites.
When it comes down to it the best thing millennials can do is just start! Even if you can only set aside 1% of your salary for retirement, it pushes you in the right direction. There is no better time to start saving for retirement than right now.
Have you started to save money for retirement? What caused you to get started or what is holding you back?
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Good points Rachel. I think there are certainly some hurdles many Millennials face when it comes to saving for retirement. However, I’m confident it’s just them that aren’t saving as a whole – at least that’s the case among those I speak with on a regular basis. That being said, the great thing is that there are many opportunities for most to start – even if it is in a reduced capacity. The key is to seeing that it does make a difference and actually start. I know that was a challenge for me as I thought it wouldn’t make a difference but it really does.
I think there’s a couple points to ponder and each Millennial is different. Great job pointing them out.
Personally speaking, I graduated with $50k in student loans and my two best job offers were for starting salaries of $50k in a low cost of living area & $35k in a big city. I chose the former, but, many are not blessed with the same options. A lot of my former classmates that got jobs in the “big city” could only afford it by getting several roommates.
I think another reason Millennials & preceding generations didn’t save for retirement is because it’s 40 years away for most people. To a 20-year old, that’s like ancient history & they feel they might die before they ever get old enough to retire at the traditional age.
Your last point is very true. Just like how many millennials don’t realize the importance of paying off their debt now, they also push off saving for retirement.
I got into a good habit of saving for retirement when I first graduated. Right off the bat I knew that it was important to contribute to the matching for my 401k and I always maxed out my Roth IRA. I was poor for awhile and I had to sacrifice a lot. But it will be well worth it in the long run.
Glad to hear your story! Lots of success stories in the mix.
I believe saving for retirement should be started as soon as possible in a person’s career. When I graduated way back, I was in huge credit card debt due to my own mistakes. However, I started contributing to my 401k enough to ensure that I was getting my employer’s full matching contribution (free money). Then I focused on paying off the credit card debt with what I received in my paycheck.
I sure did live like a student for a few years while working and paid off my credit card debt completely.
That’s great advice, and that’s what I’m doing too. Even with debt, any little money millennials don’t lose out on helps a ton in the future.
I started saving for retirement a few years ago when I realized that I was getting closer and closer to the age I wanted to be retired by, and I hadn’t actually started saving anything… Oops. Doing pretty good now, though, thanks to saving, being smart with spending, investing, and side hustles. I think one of the most important things for millennials to do is to find ways to increase their income. Cutting out a morning coffee may save you a few dollars a day (which, if you’re in huge debt, is a good thing.) But in my opinion, increasing your income is the surer path to financial success.
Student loan debt is a HUGE savings obstacle. I was working with a colleague who graduated optometry school in the early 1970’s. His yearly tuition was $1,500. I graduated in 2009 from the same school with a yearly tuition of almost $40,000. He told me student debt was unheard of. He simply had a part time job during school that covered his expenses. I think people severely underestimate the burden today’s high tuition places on new grads.
While that is a huge hurdle, it should still not stop people from saving money. Saving something for retirement is important because you need compound interest working for you. So maxing out your 401k or IRA’s should be a priority. Once student debt is paid off, you can start supercharging your savings after that.