The financial challenges for the millennial generation
Written by Paul Dodd on November 18, 2014.
The millennial generation – those born between 1980 and 1995 – are the largest generation in our history. This tech-savvy, smartphone-wielding generation are facing a world very different from that of their baby boomer parents.
Retirement for them is in the distant future but saving for it is even more important than it has been for previous generations given that governments around the world are reducing state benefits and upping the age of retirement to try and reduce their budget deficits.
In addition, the pension landscape is changing with the onus shifting from defined benefit to defined contribution schemes, which places far more responsibility on individuals to save towards their own retirement funds and manage their investments.
In spite of this, statistics show that:
• Young people are saving less than older workers because they earn less
• Young people are saving less than their parents did at the same age
• Young people are saving at a lower rate than experts recommend
• Many millennials are making no contributions at all towards a pension
Millennials are up against a huge number of challenges as they come of age in an economic landscape still coming to terms with the fallout from the global financial meltdown and the recession. High unemployment, inflation outpacing wages and the increasing cost of a university education are all major issues which, understandably, push retirement planning well down the to do list. For many, long-term financial security has to play second fiddle to actually getting and keeping a job.
However, millennials cannot afford to stick their heads in the sand on this issue. Although retirement may seem a long way off, their future economic security will be dependent on how much they have managed to squirrel away for retirement.
If you are from this generation and you have not already started saving towards your retirement, now is the time to start. The good news for you is that if you start early enough, your money will have much longer to be working away in the background for you earning compound interest.
To take an example, if you start saving into a retirement fund at the age of 25 and save even $500 a month, by the time you reach 35 you will have a total investment fund of $60,000. If we assume an annual return of 6%, even if you make no further contributions to the fund, by the time you retire at 65 your fund will be worth $481,000.
The difference is quite remarkable and clearly highlights just how advantageous it is to start saving as early as you can. My advice to any young person is to get into the saving habit as soon as you begin your working life. It will pay massive dividends in later life.
To discuss regular savings plans or any other aspect of financial planning why not get in touch for a free consultations to learn more about the options available?