Retirement Savings and the Millennial Generation: Why Millennials Need Millions

The Millennial generation is perhaps one of the more interesting generational demographics.

Millennials are changing the way many jobs, industries, and organizations function thanks to new ideals on work-life balance, more emphasis on individual wants & needs, and expecting more out of employers, businesses, and companies. What we find interesting is the financial ramifications of these characteristics — how it’s impacting them now and how it may impact them in the future.

One interesting article we found published in the Wall Street Journal in 2016 discussed a study that found most millennials don’t see themselves becoming millionaires — which very likely won’t be enough for them to retire on.

The article can be found here, but here are a few of the highlights:

64 percent of working Millennials say they feel like they will never accumulate $1 million in retirement savings.
Of those surveyed, only 59 percent have started saving for retirement.
The median student loan debt is $19,978.
Millennials list student loan debt, low income & wages, gender discrimination, and working jobs they’re not interested in as reasons for their negative outlook on finances.
69 percent of these Millennials are saving money through employer-sponsored plans, but 44 percent are only saving between 1 to 5 percent of their income.

We see a few problems with how Millennials are thinking about their savings and about their financial future. In short, it’s our opinion that not only will Millennials need at least $1 million in retirement savings to retire comfortably, but we think that they’ll need more than one million.

Let’s look at why Millennials need to become millionaires in the long-run — and what can be done to get there.

The Problems

As we’ve said, Millennials will need much more than $1 million in savings. There’s no exact number everyone needs; exactly how much you need will depend on your lifestyle, family, needs, etc.

You might be thinking, “Why do I need to have millions of dollars in savings? Other generations didn’t have nearly that much in savings, and they were able to retire.”

Here’s the problem with that line of thinking: things have drastically changed. Our economy, inflation, and social changes have adjusted our financial needs.

Let’s look at the problems Millennials are facing:

Pensions

Pensions are being (and have been) essentially replaced with “contribution plans” like 401ks. Because people are now living much longer, pensions are too great of a risk for employers. This led to the adoption of contribution plans instead, making the burden of saving for retirement placed onto the worker’s shoulders.

Teachers and government employees can still expect to receive pensions, but few private sector careers offer pensions, making it much more important for employees to take charge with their own saving practices.

Social Security

Social Security was initially introduced in 1935. At this point, the average age people would live to was only 61 with Social Security collected at 65.

Thus, Social Security was designed to be available to a minority of the population. Because average longevity was only 61, this meant that few people would make it to 65 to collect the money let alone be around to collect for years and years.

Today, though, the average age people live to is just about 79. And, nowadays, you can start collecting Social Security at 62 and up. With people living to 79 and often beyond, this can easily cause the demise of Social Security.

Payments are becoming smaller and the program likely won’t be able to support the larger older population, especially not by the time Millennials reach retirement age. In fact, the fund is expected to be depleted by 2035, leaving Millennials in the lurch.

Until and unless there is major Social Security reform — a political livewire issue — the program won’t be very beneficial (or maybe even in existence) to help Millennials retire.

More Debt, Less Income

For a number of reasons, Millennials are drowning in debt. Student loan debt is soaring. Real estate is more expensive than ever, increasing mortgage costs. And Millennials were brought up differently than other generations. In the past, saving and living within one’s means was the norm. Now, Keeping up with the Joneses is more commonplace.

The result is a higher cost of living and lifestyle that will be more expensive when Millennials eventually do retire.

On top of that, wage growth has not risen for Millennials as it has for previous generations. An Economic Policy Institute paper from 2019 found that “slow wage growth and rising inequality is the norm.”

Combined with richer taste, incomes that are growing less and less create what could be a very dangerous cocktail.

This Goal Is Attainable

While these might seem like disadvantages for this generation, they don’t have to be seen that way. Instead of focusing on those as negatives, we suggest that you view it through a lens of change.

Things have changed from past generations, and we need to now adjust our financial thinking to reflect those changes. We see those “disadvantages” as “reasons” instead: reasons why Millennials do need more than $1 million to retire comfortably.

Let’s break this down a little bit.

Let’s say that $1 million would be a substantial amount for one individual. This is actually an attainable amount if you’re saving properly, even though it sounds extravagant.

Think about it like this: saving $5,009.13 per year until retirement age would get you to that million dollar mark.

Here’s how we got that number:

Your present savings = $0. Let’s say you have 40 years until retirement, a 7 percent investment return, and you want your ending balance to be 1 million. Using a time value of money calculation, you can calculate an annual savings amount of $5,009.13.

This definitely over-simplifies a lot of things, but I just wanted to show you that the far off number of $1 million is attainable and, overall, not unreasonable to shoot for at all!

Why Millennials Can Get to One Million (and Beyond!)

Becoming a millionaire is definitely attainable, but that doesn’t mean it won’t take hard work.

We like to tell our Millennial clients that it’s not going to be easy to prepare for all of the goals they have (financially and otherwise), but that doesn’t make it unattainable. It’s going to be hard work and require sacrifice, but if you’re serious about your goals, it can be done.

Millennials have advantages prior generations did not have, as well, which will make accumulating savings a bit easier. Those advantages are:

Millennials Know They Need to Prepare for Retirement Early

Other generations had the excuse that “they didn’t know” that they needed to start saving in their early adulthood. However, this is now pretty common knowledge amongst Millennials, meaning they know they need to get started saving ASAP.

Other generations didn’t have access to NerdWallet, Money Magazine, or financial Instagram pages. They didn’t have financial literacy classes or blogs to help teach them about money and the importance of saving. They didn’t have direct deposit to automatically save an amount each month or investment apps to help with stocks.

Millennials have all of those things that will help that generation get started on smart saving ASAP.

Not only that, but Millennials witnessed some of the most serious economic and financial crises of all time, which puts smart saving and financial planning at the top of many people’s priorities.

Technology

We mentioned this earlier, there are many more financial tools and access to financial literacy for the Millennial generation.

Technology makes it easy to understand your financial situation, move money around, track your stocks & investments, and more. It’s also given more people access to financial understanding, classes, and information, which has leveled the economic playing field, so to speak.

Barriers to entry (both monetary and education-wise) and the costs of getting into investing & saving have been greatly reduced because of access to this technology.

Time

Because Millennials now know very early on that saving is important, it gives this generation much more time to dedicate to saving. Instead of realizing in their late 30s or 40s that they need to start saving (like other generations), most Millennials know or knew to start saving in their early 20s.

This gives people at least thirty to forty years to save, plan for retirement, and accumulate wealth.

This means you have more time to save, but it also means there’s much more time to earn money through interest.

Access to Financial Advisors

Unfortunately, many financial advisors have large minimums for clients. Because: larger minimums = larger commissions.

The problem is that leaves so many younger people without the financial advice they so desperately need! That’s where we come in.

Our services, plans, and information can actually aid Millennials as it will be relevant to the current economic situation and overall place in life right now.

You Can Be a Millionaire

While these are unprecedented times, we believe that Millennials can and should change their outlook on their financial future. One million dollars might sound like an unattainable number, but thanks to better financial understanding and better access to tools & tech, Millennials can feasibly reach that goal.

This generation will have different obstacles and challenges, sure. But, they also have tools, tech, and information that will help them reach their million dollar goals.

If you’d like to get started on your financial future with an experienced advisor, we’re to help. Our team has years of experience working with Millennials on their savings, investments, and budgets.