Most people in their 20’s think that they’ll never grow old or retire. With this mindset, the idea of taking a chunk of your scares resources every month and locking it into a fund that you can’t access for the next 40 years sounds absurd. Why think about it now when you can worry about it 40 years later?
But people from the older generation who are approaching retirement or have already retired will tell you differently. Most of them are regretful for not taking advantage of their youth and wasting away decades when they could have used the magic of compound interest to grow their nest egg and retire comfortably.
And believe these retirees when they tell you that the regret of not saving enough for old age with strike hard if you don’t act now. 20’s are the best years to take advantage of a retirement account because you have over 40 years to grow your nest egg and even small contributions can carry your assets a long way.
Millennials Not Thinking About Retirement
Unfortunately, most of the younger generation is not listening to the advice.
According to the Money Under 35 survey by Navient, almost 40 per cent of the millennials aren’t worried about saving for retirement. Of course this doesn’t mean that they are spending all their money on expensive gadgets and adventures.
The study actually shows that millennials are more focused on goals that give instant gratification such as paying off student loans, applying for mortgage and saving for an emergency fund. Probably the most frivolous short-term expenditure listed by most participants was travelling, whereas the rest were all sensible financial decisions which ranked just as high as saving for retirement.
Despite being fairly sensible about their finances, only 31 per cent of the millennials between the ages 22 and 35 were making meaningful contributions towards retirement accounts. The study also revealed that Americans on average were saving less for retirement. In 2017, the average retirement account balance was $32,818, down from $37,638 the previous year.
Education Matters
Researchers found that Millennials with some sort of college education were more likely to save for retirement in comparison to those who didn’t have any degree which clearly shows that education can have significant impact on an individual’s ability to make sound decisions about managing their finances and investing for old age. 45 per cent of the participants with bachelor’s degree were saving for retirement, in comparison to 31 per cent with associate degrees, 38 per cent with advanced degrees and 25 per cent with no degrees at all.
One of the biggest factors that gets in the way of retirement savings for millennials is student debt which can take years to pay off. The study shows that people are free of college loans are able to save up to $47,000 in retirement in comparison to student debtors who were only able to save up to $25,000
Julie Wilson’s Head of Research said in a statement that most millennials tend to struggle with paying down debt and save money at the same time. With so many immediate financial obligations, it makes sense why they put off retirement contributions until a later age.
How Employers Can Help
The study, which was conducted on over 3,000 people, showed that employers can help millennials bridge the gap between their savings and retirement goals through 401(k) match programs. There is plenty of evidence to prove that employer-provided retirement funds can be a great motivational factor for employees to save for retirement. Millennials are twice as likely to get serious about retirement if they work for a company that give them a good 401(k) match.
Retirement savings work the same a medication would for a health condition. If your doctor prescribes you a pill to avoid heart attack in old age, you’ll most probably take the medicine every day even if you don’t feel an immediate difference in your health, thinking that your doctor knows best.
So listen to the financial experts who all have one mantra: save as much and as early as possible in order to protect your distant, but inevitable, future.
