The Millennial Retirement Enthusiasm and Reality Gap

I’ve been following millennial savings and retirement trends for many years now, so I was excited to see that TD Ameritrade recently published findings from a new survey of millennials on these important topics.

As I was combing through the data, I was surprised to see the following finding:

“Millennials reported that they expect to retire at age 56 on average (millennial men expect to retire even earlier, at age 53 on average).”

Great! I’m a big fan of the concept of early retirement (and I may be more than a fan in the not too distant future). It appears that I’m far from alone in my enthusiasm. But, then I read on…

“On average, they said they don’t plan to start saving for retirement until age 36.”

That’s a problem. Investment compounding needs time to work its magic. And the difference between starting to save for retirement at age 25 versus 35 means your overall nest egg will be cut in half, as shown by this example of $10,000 saved per year at a modest 6.5% return.

millennial retirement savings

In fact, every $1 saved in your twenties is the equivalent of $10.06 in your 50’s (at an 8% return). Even if you factor in a 2% annual inflation rate, you’d have 556% of the buying power that you do today. That’s why I’ve said that if you don’t save in your twenties, you’re screwing your future self. In fact, most are screwing their future selves. The TDA report went on to say,

“38% (of millennials) are saving for retirement” (which means that 62% are not). note: oddly 70% rate themselves as “savers”

That aligns with another report that found that 66% of millennials have no retirement savings. Zip. Zero. Zilch. Nada.

If you don’t start saving until age 36, the odds are extremely slim that you will be able to amass the large sums of money that you will need to hit your expected retirement date of 53 or 56 (or any age, really). Even if you miraculously flip the switch from “not saving at all” to “world-class saver”, the income may not be there to do so, as the Federal Reserve found in a landmark study of lifetime earnings,

“For the median lifetime earnings group, average earnings growth from ages 35 to 55 is ZERO. Second, with the exception of those in the top 10% of the LE distribution, all groups experience negative growth from ages 45 to 55.”

average millennial retirement savingsI think what we have here is a massive gap between enthusiasm and reality when it comes to retirement savings for millennials. Retirement predictions gone wrong have consequences – and never being able to retire is one of them. And clearly, there is a delusional level of over-confidence in being able to suddenly crank savings levels up to seldom reached levels in order to hit retirement goals. Personal savings rates rarely flip on a dime (the nationwide average is currently at an all-time low of 2%, not far from the millennial personal savings rate of -2%).

At a 2% personal savings rate, it would take you 50 years to save the equivalent of 1 year of income (and then, 1 year to totally spend it). That’s not going to cut it.

And if you’re counting on an inheritance to close the gap, I have bad news for most of you.

Concerned? Good.

Now here’s a few things you can do to start closing that gap between enthusiasm and reality on retirement:

  1. Stop putting off savings. Change your mindset around saving. Look at it as investing in your life. And the sooner, the better.
  2. Calculate the actual numbers needed and what it would take to get there.
  3. Save as much as you can. Start by getting the maximum employer 401K match that you can get.
  4. Invest outside of your employer retirement account (including HSA’s).
  5. Find ways to boost your income (from employers and on your own), to further your savings.
  6. Keep referring back to this article and site for more inspiration. ;-)

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