Why Are Millennials At Risk of Working Into Their 70s?

Retirement can technically begin at the age of 62. This is the earliest age that people can begin to collect their social security benefits, although they will not be able to withdraw the full amount until the age of 67. (Currently, full benefits are available at age 66 years and 2 months, but this will gradually increase to the age of 67 by the time millennials are ready to retire.)

Even with full benefits available at the age of 67, a large number of millennials are at risk of working into their 70s. While this may not sound that bad, it could pose a few serious problems.


The Issues With Extended Working Years

The first issue is that for some, their health won’t allow them to work into their 70s. This could cause a serious increase in poverty ratings for senior citizens when it comes time for the millennial generation to retire. This not only effects an individual’s quality of life on a small scale, but could end up harming the economy on a grander scale.

The second issue has to do with the workforce, and how larger numbers of senior citizen workers might effect the overall balance, thus resulting in a domino effect that harms the prospects of the generation just then entering the work force. The way it is supposed to work is that older workers leave the workforce so that younger workers can enter it. Traditionally, these older workers were taken care of with their retirement savings, social security, and (often) their children or grandchildren’s assistance. If the older workers aren’t leaving the workforce, then those jobs don’t become free.

But why are millennials at risk of working into their 70s? It’s a multitude of different reasons that all come together for this specific generation – and potentially the next one or two which follow.

Financial Crises

The millennials generation literally started their adult lives in debt. The astounding amounts of student loan debts affecting this generation and those that follow keeps them in debt into their 30s – and possibly, their 40s. When this is paired with higher costs of living that aren’t balanced out with increased wages, you have a financial crisis.

This crisis means that a large portion of millennials are currently living from paycheck to paycheck, and are unable to save anything for retirement. Even those who are saving something are far behind the expert guidelines of a year’s salary by age 30.

Other Reasons

Although the financial issues affecting the millennials generation are primary to blame, there are two other major factors in play. One is the uncertain future of social security. The decrease in funding for social security benefits could cause there to be less available for the millennial generation – and this means that they will have to work longer to save more.

When you pair all these other issues with an extended expected life span, you have disaster. People living in the US in 1960 had an average life span of around 69 years. The average modernly is just shy of 79 years.  

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Why Aren’t Millennials Saving as Much as They Should for Retirement?

Experts state that you should have at least one year’s salary saved by the time you reach 30. Millions of millennials, however, are far behind this guideline – if they’ve saved anything at all. But why is the millennial generations not saving as much as they should for their retirement? You would think that with extended life expectancies, millennials would be saving even more for the inevitable post-working years.


Large Amounts of Student Loan Debt

The millennial generation is drowning under massive amounts of student loan debt. Tuition for a four year institution can range upwards of $10,000, and this doesn’t take into account things like lab fees, books, other necessary college supplies, or cost of living while attending college.

Unable to pay for college with a full-time job (or even two full-time jobs, if this were possible), these college students take out loans. After graduation, it can be difficult to obtain immediate employment. Yet, even on-time payments each month don’t help to reduce those loan amounts as much as college students think, thanks largely to increasing amounts of interest placed on loans.

If millennials were lucky, they managed to get at least some of their loans without interest. This is great, but if they decided to attend college out of state, they could end up paying over $30,000 in school tuition alone.

Increased Cost of Living

The cost of living has risen steadily over the past few decades, and everything from the cost of a gallon of milk to mortgages is more expensive now than ever before. The minimum wage in most states has not risen at the same rate, however, causing rising poverty levels that are felt most heavily in already poor areas.

When millennials are often living from one paycheck to the next, it can be hard to save for anything, and this includes retirement. It is also one of the many reasons that it seemed as though millennials weren’t buying homes as often as previous generations… they simply couldn’t afford it.

Limited Employer-Contribution Options

Another thing standing in the way of saving an adequate amount of money for retirement is the limited number of employer contribution options available. While some larger corporations and a few smaller businesses offer 401(k) plans with employee matching, pensions are a thing of the past. Previous generations could rely on pensions for a lot of their retirement needs, but this isn’t the way the world works anymore.

Even those places of business that do offer 401(k) matching usually only do so up to 4% of a person’s income, and the going average is around 2%. Say that someone is working a normal 40 hour week at $10 (which is slightly above minimum wage), they would have a total weekly income of $400 before deductions. Two percent of that is only $8.

If a millennial only maxes out their employee-matched contributions, they end up saving $16 a week. Over the course of ten years, between the ages of 20 and 30, they would have only saved $8,320 before any accumulated interest. The goal, at $10 an hour, would have been to have $20,800.

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Should You Pay Off Your House Before Retiring?

Most people hope to purchase a home during their lifetime, and a large portion of them succeed. In today’s world, the average homeowner is around 32 years old. With a 30 year loan still being the most common mortgage taken out, that places the average time for paying off a home at 62 years. Things do happen, however, and a few missed payments or placing a loan on hold for emergencies (a rare but possible occurrence) could place that loan a few years past 62 – which also happens to be the earliest age people can retire and begin drawing social security benefits.

If someone doesn’t purchase a home at 32? Populations living below the poverty line or saddled with large amounts of student loan and credit card debt often have to wait longer before they can make their dream of purchasing a home a reality. If that 30 year mortgage loan isn’t obtained before a person turns 37, they can’t pay off their loan prior to full retirement (and social security benefits) at age 67 – unless they make early payments.

But does this even matter? Is it necessary to pay off your house before retiring, or is it okay to make payments in your post-working years?


Paying Off Your Mortgage Pre-Retirement is Preferable

If it’s at all possible, most experts recommend doing away with any large debts before you enter retirement. In addition to your mortgage, this includes any car leases, student loan debt, or credit card debt.

The reason you would ideally have all your major debts paid off is that it decreases your overall cost of living when entering into retirement, which sets you on a fixed income. This stretches the money you’ve saved for retirement so that you can live comfortably.

Let’s say, for example, that your utilities average $500 a month, and your groceries (for two people) averages $400 a month. During your working years, you also have a $1,200 monthly mortgage payment, $200 monthly car payment, and $100 in various debt reduction payments. Eve if you have to stretch your budget a little thin for a few months, or even a year, making early payments to get rid of at least two of those debts can significantly lower your costs of living. Ideally, you would pay off your mortgage before anything else, as this is the largest payment for most people.

Having A Mortgage Isn’t Always A Financial Death Sentence

If there is no plausible way to pay off your mortgage before you retire, it isn’t always a financial death sentence. You would need to account for those payments when planning your finances, however, which increases the amount of money you’ll need to save.

Even if it isn’t totally paid off, those who are nearing retirement should aim to have as few years left on their mortgage as possible. This way, you will only have to really stretch your budget for a short number of years before you’re able to enjoy your hard-earned and well-deserved post-working years more thoroughly.

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5 Retirement Tips You Need to Know in 2019

Retirement is supposed to be an age of relaxation, free of the stress and hassle felt during the working years. Unfortunately, this isn’t always the case. For those who haven’t properly planned properly, retirement can be even more stressful than the working years. If you’re planning on retiring in 2019, or in the next few years following, there are a few key things you need to know. This article discusses just five of those.

1. Don’t Rely Too Heavily on Social Security Benefits

The amount you receive for social security isn’t going to be enough to live on. Relying too heavily on this income can be disastrous for your financial health. In fact, SSI typically only pays out an average of $17,532 annually, which amounts to around 40% of the average person’s income.

2. Don’t Retire By Yourself

Depression rates are high among retirees. The main culprits affecting senior’s mental health are boredom and lack of socialization. If you plan on retiring but don’t know anyone else who will also be retiring (within a year), then you should hold off a few years. Spouses should plan to retire at the same time for some guaranteed companionship.

3. Plan to Work – Kind of

Working in retirement? It might sound crazy, but a lot of retirees have found that supplementing their income with part-time or freelance work isn’t only good for their finances, but also their mental health. Freelancing has become one of the most popular ways to supplement social security income. Even if earners only earn an average of $10 an hour and work only ten hours (split between two days), they can add $100 a week to their pockets.

4. Plan Your Savings to Include a HSA

HSA stands for “Health Savings Account.” Medicare does not cover everything, and the out-of-pocket costs for retirees can dig into their retirement accounts. Having an HSA can help negate some of the potential costs, including those that could incur if you end up with an unexpected disease or illness in retirement. Even if you and your spouse each contribute $5 a week to an HAS from the age of 30 to 67, you could end up with over $9K to help offset medical costs.

5. Plan to Wait Until 67+ to Withdraw SSI

Although you can begin withdrawing social security benefits at age 62, you won’t be able to withdraw the full amount until age 67. Waiting means a much more comfortable lifestyle in your post-working years. Even if you plan to retire earlier, it may make more sense to withdraw larger amounts of money from your retirement accounts until you reach age 67.

If you take the five things listed above into consideration, retiring in 2019 or the next few years following can be the relaxing experience you so desire… without unnecessary financial stresses. The tips listed above should, of course, be paired with an adequate amount of savings for your own estimated cost of living to be most effective.

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