When you were born may impact the success of your retirement savings more than you realize. Each of us follows a financial trajectory through life that is largely dependent on prevailing economic, political, demographic and social conditions. But does the generation we belong to possess different characteristics of work ethic and savings habits than other generations?
Take my generation: the Millennial generation. A Millennial is anyone born between 1982 and 2004. The broad perception is that Millenials live in their parents’ basement, don’t buy houses and save less money for retirement than generations before them. The numbers support this notion. A 2013 University of Missouri study found that 63% of Millennials have NO retirement savings! Why is my generation so far behind the rest of the U.S. population?
A further look reveals a concerning picture. Millennials came into the workforce around the Great Recession when the starting salary for an entry level job had dropped nearly 20% from its 2007 high and the number of available jobs had shrunk significantly. Not a good start.
While Millennials are also the most educated generation in U.S. history, this is not necessarily a positive financial attribute. Many Millenials came out of college in the worst economy since the Great Depression and are now saddled with massive amounts of student debt. The National Center for Education found that, on average, Baby Boomers could pay off four years of college by working 306 hours at minimum wage. In contrast, a Millennial needs to work 4,459 hours in order to wipe his or her debts clean. More debt and less work: strike two.
Furthermore, now that we’ve been forced to rely less on pensions and Social Security to fund retirement, retirement success rests squarely on the shoulders of the individual. Companies have moved towards outsourcing or contracting many of their jobs (think Uber) which do not offer retirement benefits. The National Institute on Retirement Security estimates that only a little over half (55%) of Millennials are eligible to participate in an employer-sponsored retirement plan.
All of this matters because Millennials are less able to save when they need more. Financial market returns are expected to be lower than in the past. And Millennials are living longer, requiring their retirement accounts to produce income for a longer period than any other generation before them.
So where do Millennials go from here? It may very well be that Millenials need to spend differently, adjust their lifestyle, take less vacation, live in smaller homes and have fewer children. The actions of previous generations have ultimately shaped future generations and the Millennial generation is no different. So I say to my fellow Millennials: control your destiny and welcome the challenge of planning for a successful retirement amidst difficult circumstances. That will be something to brag about to our grandchildren!