Research is revealing that although several millennials are making wiser financial choices than individuals of earlier generations, there are still a number of these younger folk who aren’t giving their retirement years nearly as much consideration as they should be.
Many of the younger generation think that they won’t have to worry about saving too much for their retirement because of Social Security being available. However, the amount they will receive from this will not be nearly enough to cover their living expenses by the time they stop working – which is why now is the right time for them to start planning financially for their golden years.
The Right Time is “Right Now”
As many as 50% of millennials have revealed that they don’t have any form of 401(k) and a mere 30% have mentioned that they have started to plan for and save money towards their retirement. However, the general consensus among the younger generation is that they want to enjoy themselves right away, meaning that they end up delaying saving towards retirement for as long as possible.
It’s essential for millennials to understand that “right now” is when they need to think about saving and start taking the required action to do so.
Learn about the Power of Compounding Interest
Several younger people aren’t aware of how compounding interest works and that it will be most effective when taken advantage of during their 20s and 30s. For instance, a 20 year old who invests a $1,000 lump sum and adds just $100 to it each month with a 4% interest rate will end up with more than $70,000 after 30 years. However, a 50 year old who invests the same amount, adds the same amount monthly, and gets the same 4% interest will only have about $15,000 saved after 10 years.
Halt Unnecessary Spending
A number of employers have the option for employees to contribute to various sponsored retirement funds, with the most common option being that of a 401(k). While the 3% match that most companies offer might not sound like much money, the truth is that it will accumulate substantially over time – thanks again to compound interest.
Most employers off the 401(k) contribution match as a voluntary option, meaning that millennials who don’t enroll as soon as they’re eligible to do so will effectively be losing out on a 3% raise on their earnings. This is one situation that can be classified as obtaining free money, which is why it’s crucial for millennials to take full advantage of an offer like this.
While it is often tempting for the younger generation to spend their earnings on the latest vehicles, gadgets, and other “nice to have,” the truth is that this will all come at the demise of their retirement. If you are a part of the millennial generation and you’re concerned about having enough funds to retire at some point in your future, schedule an appointment with our advisory team today.Continue reading
One of the biggest things standing in the way of millennials saving properly for retirement is a massive amount of student loan debt. The rising costs of living have many millennials living paycheck to paycheck, barely making their student loan payments, and in this scenario there is simply no way to save anything for retirement. Even $5 a week might seem too much for some. But what if you could pay off student debt and save for retirement? The following companies are giving their employees the ability to do just that.
PwC – More than 8.5K employees of this company have taken advantage of their loan-offset program. The program is a company benefit that offers to pay $100 in student loan payments for enrolled employees per month, for a maximum of six years. All total, they have helped their employees pay off nearly $26 million worth of student loan debt, and PwC is among the first of large companies to help tackle the student debut problem. This helps free millennials up to save more towards retirement, earlier.
Abbott – The massive healthcare company is giving their employees the option to pay off student debt at the exact same time they save for retirement. As part of their 401(k) plan, Abbott will contribute a maximum of two percent of an employee’s income towards their retirement savings if they pay an equal amount towards student loans. A person who makes $400 a week could end up with $512 in retirement savings per year, and knock at least that much off their student loan debts at the same time.
Sotheby’s – Employees at this company who have qualifying college debt can receive $150 towards their loan’s principal when they make a payment of their own. The company offers up to $1.8K per year in these benefits.
Other Noteworthy Company Programs
Although the following companies don’t offer direct assistance for student loan debt, they do offer programs that may make life easier for a debt-laden millennial generation.
Urban Outfitters – The clothing store allows employees to bring their dogs to work with them, and offers discounted pet insurance.
FS Investments – They’re physical locations are equipped with an onsite nutritionist and gym.
Sweetgreen – This company offers an incredible five months paid maternal and paternal leave, which is also available for adoptive parents and foster parents.
Amazon – The massive company is rated as one of the best places to work, and the benefits make it obvious why. In addition to the normal 401(k) with matching, health benefits, and paid time off, Amazon offers paid maternity leave, paid sick leave, and healthy snack options at least once a month for all employees.
If millennials want to pay off their student debt and save for retirement at the same time, they need to get creative. Working for one of the companies listed above can help them to achieve both these goals simultaneously, which is significantly easier than working two jobs (which is a secondary way many millennials are trying to pay off their student debts).Continue reading
The millennial generation doesn’t have the optimism and big hopes for retirement previous generations have had. Why? An astonishing eighty percent of them are afraid they won’t receive Social Security benefits upon retirement. But why do they feel this way, and what does the future of SSI really look like?
Why do Millennials Think They Won’t Receive SSI Benefits?
The Social Security Administration’s Board of Trustees has recently reported that there will be no trust fund reserves left by 2034, and millennials have taken this to mean they will not receive any benefits upon retirement.
This sounds like a very bleak future where a limited portion of the senior population will ever be able to retire. Those who do will likely retire even later than the average 62 to 67 years that the current generations do. It also means that, if millennials ever want to retire at all, they will need to start saving earlier and will need to save larger portions of their income.
But is the future if SSI benefits as bleak as it appears to be? Or has this statement been taken out of proportion by a generation already financially stressed out due to the rising cost of living and mountains of student loan debt?
What Does the Future of SSI Really Look Like?
The future of SSI is not as bleak as millennials expect, according to the Social Security Administration’s previous acting commissioner, Carolyn Colvin. She says that there will be Social Security funds available when the millennial generation reaches retirement age.
What does look likely to happen, however, is that the funds paid out will be less than previous generations received by as much as a quarter. This is because there will be no trust fund reserves left if things continue as they are, and millennials will need to replace that with retirement income sources from other places. The money that the millennials pay into social security through taxes, however, will still be available to them.
Tips for Millennials to Save More for Retirement
There are some ways millennials can help to save additional money for retirement, to help supplement the likely decrease in SSI benefits. A few ideas include:
- Start early. Even saving $1 a week in your 20’s and early 30’s can make a difference in the amount of interest accumulated.
- Find a job with 401(k) matching. This means a company will match a certain portion of your total income if you automatically deduct it from your paycheck towards a 401(k). If your total income is $400, and your company matches 1%, then you can save $4 a week and have the company match that so $8 a week is put away.
- Consider working a part-time job during the summer or holiday season and place at least half of all earnings into a retirement account.
Although the millennial generation is worried they won’t receive any SSI benefits upon retirement, the future isn’t quite as bleak as that. They will, however, receive less than previous generations and will need to make up that money to have a comfortable retirement. The tips listed above give great ideas on how millennials can do just that.Continue reading
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.
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.
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.Continue reading
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.Continue reading
Wouldn’t it be amazing if millennials could save for retirement while simultaneously paying off their student debt? A new bill introduced to Senate could make this possible, thus brightening the financial outlook for millions of cash-strapped millennials.
Why was the bill introduced?
The bill was introduced just two days after an announcement stated student loan debt in American is now in excess of $1.465 trillion. While it may seem a large number, it becomes even more so when you realize it is more than double the amount it was when the last recession ended.
What does the bill say it will do?
The bill has been titled the “Retirement Parity for Student Loans Act.” It was proposed by Ron Wyden, who is the Senate Finance Committee Ranking Member. The goal of the bill is to give the average working American flexibility to save for their future (i.e. retirement) while still being able to make their repayments on student loans.
How will it work?
If the bill were to be passed in Senate, then those employees who are unable to afford both retirement savings and student loan debt payments would be eligible to receive help from their employer.
The help would work like this:
The employee would make a contribution to their student loan debt directly from their salary, in much the way they would contribute to a 401(k). In turn, their employer would match that contribution and place it towards a worker’s retirement fund.
Let us say, for example, an employer offered a 5% contribution match on a 401(k) plan. The employee makes $500 a week but is unable to make payments on their student loans while making a 5% contribution on their retirement savings. The employee would be able to make $25 payments towards their student loans, while their employer still contributed $25 to their retirement savings.
Based on the numbers above, this bill could help employees to reduce their student debt by $1,300 in a single year while simultaneously contributing the same to their retirement funds.
Alone, of course, this is not enough to pay off all of a person’s student debts, but it is a big step in the right direction. Even with the bill, employees are encouraged to make additional weekly or monthly payments towards their debt if they want to see it paid off.
Who will the bill apply to?
The bill would implement a voluntary benefit from employers, not a mandatory one. Some of the best employers, however, would almost certainly implement the plan were it to be passed. It would be applied to SIMPLE, 401(k), and 403(b) retirement plans that have employer matching for contributions.
When should we expect to see changes?
If the bill were to be passed in Senate, then the changes to these employer-matched retirement plans would officially take effect in 2020. The bill is currently in preparation for next year, when it will officially be introduced to Senate for more in-depth conversation on what it might mean for the future state of America.Continue reading
The millennial generation is in the perfect position to have an amazing retirement. With plenty of years left to save, compound interest can significantly help to boost your own initial investments.
The key, however, is knowing how to save so your returns are maximized. Ready to find out how? Here are a few things millennial savers need to know about retirement.
Take Full Advantage of Employer Matching
If your employer offers a 401(k), they will match a certain amount of your own contributions. This is typically a percentage of your salary. Amazon, for example, matches 2 percent.
This means that at $500 a week you should be contributing $10 to your 401(k). Your employer will then match that contribution, so you end up with $20 each week. It may not sound like much, but employer matching is essentially free money.
After working with the same company at that same 2% for just five years, you could accumulate an initial investment of $5,200 in your 401(k). Without employee matching you would only have $2,600. That is a lot of free money you could be missing out on.
Consider a Few High-Risk Investments for Your Portfolio
While low to moderate-risk investments are much less volatile than their high-risk counterparts, they also have a lower return. Millennials who are in a good financial situation should consider adding a few high-risk investments to their portfolios.
These high-risk investments carry the potential for a significantly higher profit over the long term, and usually come in the form of stocks. The trade-off is that there is also the possibility of losing your entire initial investment. Even then, however, you could bounce back in the following year.
Create a Plan – and Stick to It
Being a little spontaneous when you’re young is okay, but you should have a financial plan in place. There is no need to micromanage everything. Instead, learn the basics of asset allocation and tweak the plan a little once annually.
Millennials also need to figure out how much money they’ll need to have saved by retirement. You can find a ton of free calculators online which will help you figure this number out. Once you have a number, adjust your savings goals and plan to ensure you’ll reach that number in time.
Don’t Freak Out at The “Big Number”
When you figure out how much money you need for retirement it can be frightening. That number looks incredibly “big” and many become stressed-out because they think they won’t be able to make it.
Here’s the thing though: your initial investment will be almost nothing if you start saving now. Compound interest will be the majority of your holdings, in fact. For example: a $6K yearly investment over thirty years into an account with a 6% compound return will leave you with $503K. The initial investment is only $180K.
Remember a Non-Retirement Savings Account
All your savings should not be tied up into a retirement savings account. That would force you to withdraw from that money in the event of an emergency. Consider matching or going half what you put into retirement for a general savings account. If you save $10 a week in retirement, place $5 or $10 into a non-retirement savings account. This helps keep you (and your retirement) financially secure.Continue reading
With two, three, or even four decades left before retirement you can retire it can be difficult to focus on financially planning for it. In fact, long term goals are always more difficult to focus on because the reward reaped from them isn’t truly within reach – yet.
For those far from retirement this isn’t the only road block, however. Younger workers neglect their retirement savings in favor of much more pressing goals. Loaded down with student debt and simultaneously striving towards a home down payment, young workers don’t have a lot of room left in their budgets to focus on retirement.
The Big Issue
The problem with putting nothing away for retirement in your twenties and early thirties, however, is that you lose out on years or decades of compounding interest. That’s a mistake that many millennials may not ever recover from – nor will they get the opportunity to, because it’s now or never with compounding interest.
In fact, it’s over half of all millennials who aren’t contributing to a retirement account. The exact number is just about 52%. This staggering statistic is even scarier when you think about how this could mean nearly half a generation will never be able to retire.
There is Hope
There is good news, however, and that is that time is still (for now) on your side. The longer you allow your savings to accumulate interest, the better. For an example, let’s take a look at how much money you’d have if you were to save $400 a month when it comes time to retire.
If you begin saving at age 22, $400 a month with an assumed annual 7% ROI (return on investment) would place you at $1.37 million at age 67 – the age you can begin receiving your full social security benefits.
If you begin saving at age 32, you still have an okay amount of savings at $663K, while at 42 it amounts to only $303K. If you wait until age 52 to begin saving, you only end up with $120K.
As you can see, every year and every penny really adds up – especially if you begin early on.
Doesn’t Have to be All or Nothing
But what about if you can’t save $400 a month, which amounts to roughly $100 per week? This isn’t a reasonable amount for many cash-strapped millennials, but that shouldn’t stop young workers from putting away something.
Even without interest, saving $5 a week from the age of 22 until the age of 67 will amount to $11.7K, while $10 a week during that same timeframe can guarantee $22.4K. Remember – this is without interest. With a solid few decades on interest you could double or even triple that number.
The key takeaway here is that young workers should begin saving something towards their retirement, even if that something doesn’t seem to make a big difference. Whether you can stash away $100 a week or only $5, every penny counts when presented with the opportunity to get 35 to 45 years of compounded interest.Continue reading
Most people have not saved enough for retirement. The closer they get to the end of their working years, the more obvious this becomes.
The good news is that there is a minimum of seven different bills which could help if they were to be passed by Congress. Even more amazing is that some of these bills are prompting the cooperation of both Republicans and Democrats.
Retirement Enhancement and Savings Act (RESA)
If this bill passes it would require employers to tell their employees how much their 401(k) is worth in retirement – not just how much they have currently invested in it.
The idea is that telling people how little is invested in their retirement will generate greater motive to save.
Strengthening Financial Through Short-Term Savings Act
This second bill is designed to help people handle unexpected emergencies. People could sign up at work to have some earnings placed away, tax-free. The idea is to deter people from withdrawing from their retirement accounts, which often comes with heavy penalties.
The Millennial Problem
What does this have to do with millennials? Millennials are a sizable generation in American, which were born between 1982 and 2000. Their biggest worry is that they will never see as much as 80 percent of what they are paying into social security.
The fear is well-founded. Current funding levels for SSI will officially begin paying out higher amounts than it brings in during 2021. By the year 2034 the benefits people receive will need to cut by around 23% to offset this.
How to Fix It
There are a few ways that Congress could potentially fix the problem, although none of the solutions are particularly appealing for anyone. They are, however, better than the option of paying into a fund only to be unable to withdraw your rightful amount come retirement.
The current options being thrown around Congress include:
- Lift the wage cap so all wages are taxable. As of right now, the ceiling for taxed income is $128,400.
- Raise the full retirement age (again). This is currently set at 67 but moving the full retirement marker up another year or two can help offset some of the losses.
- Increase legal immigration so there are more young workers in the country, which would increase the amount of money going towards funding social security.
What Can Be Done?
If Congress doesn’t do anything than millennials will need to plan ahead for a shortage in social security funding, which could potentially drop monthly benefit amounts drastically. Exactly what can be done will depend on your risk tolerance, income limits, and other individual factors, but a few ideas include:
- Closed-end funds – Specialized portfolio usually concentrated within a specific niche or geographical location.
- Real estate investment trusts – Investments in properties producing income or mortgages.
- Asset management and business development companies – Investing in companies who invest in small companies who are likely to grow quickly.
- Master Limited Partnerships – Investment in the production of energy, transportation, processing, etc. This can include anything which generates 90 percent of its revenue from natural resources.