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.