The following is a post by MPFJ staff writer, Jeff. Jeff writes about reducing waste, saving money and building freedom at his website, Sustainable Life Blog.
With incomes stagnating and expenses for larger cities where jobs are easier to come by constantly going up, millennials are getting squeezed financially from both ends, making it difficult to save. Everyday, a decision must be made on what to prioritize and what to cut out or spend less on, and seemingly people in the millennial generation choose to forgo retirement saving, to their great detriment.
Being a millennial myself, I am familiar with the tug of student loans, consumer debt, as well as basic expenses like food and rent that seem to be advancing at a steady clip. With all of those budget pressures and retirement so far off, who has the leftover money to save?
Unfortunately, with that attitude, millennials are giving up their biggest advantage in saving for retirement: Time. A long time horizon (~40 years) can help your money grow and compound beyond what you can imagine now, but if you’re not putting anything away for retirement, you wont get any of that benefit and could find yourself in your mid 40s worrying about whether or not you’ll have enough money, and wanting to go back in time to kick yourself for not saving. With all that extra time, even the smallest bit matters when it comes to retirement.
To give you a quick lesson on how powerful time is, consider this: 1 dollar invested at the year end of 1929 grew to $1,188 dollars in 2010, by year end. That’s a 9.1% return Year Over Year. While that time frame of 80 years is about double the amount of time that you have, I think it perfectly illustrates how powerful time can be.
Build a Solid Foundation to Take Risks
Even early in their careers, millennials are already taking more career risks and moving for jobs with more responsibilities and bigger paychecks at far quicker rates than their parents did. In my 6 years in the workforce, I’ve switched jobs 3 times (stayed in the same industry though), which is about 3x more companies that I’ve been employed by than my dad, and he’s been working almost 8x as long as I have.
If you start saving early (both for retirement and general savings) you can build yourself a solid cash cushion and allow yourself to take more risks in the future. Perhaps switching to a job that you would thoroughly enjoy or get a lot out of that doesn’t pay as well as your current career, or perhaps you’d use that savings to strike out on your own.
Even if you don’t end up doing either of these things, since you’ve got a big cash cushion, you’ll be free to make that decision.
No One Else Will Do It For You
As it stands right now, something will have to change with the social security program for it to continue paying out benefits. At some point in the future (experts think it will be around 2037) social security will start having to pay out 75 cents for every dollar of expected benefit. Of course, that is a ways away and many things can change between now and then (such as taxes being raised or benefits being lowered) but as a millennial, you should not assume that you’ll be able to get a significant portion of your retirement needs met by social security. Sure, things could change, but who knows when and what that will look like.
Even though things are tough with rent, food, student loans and other bills, it’s important to take advantage of the time that you have in front of you before retirement and save some money while you can – even if it’s a small amount.
How about you all? How much are you saving for retirement, and if you’re a millennial, what’s the biggest challenge you’re facing? How are you getting around that challenge?
Share your experiences by commenting below!
***Photo courtesy https://www.flickr.com/photos/68751915@N05/6870886851/
