The concept of “retirement” always seemed a bit funny to me — after all, why save up all of your recreational time for the years when your body is expediting its rate of decomposition? Retirement wasn’t always a thing just as engagement rings were not always a thing (read a good recap of how retirement came to be on The New York Times.)
It turns out that when you’re older, keeping your mind and body busy with work can help you live longer (no really, it’s proven that retirement has a detrimental effect on health in old age.) Research from the Institute of Economic Affairs and the Age Endeavor Fellowship found that both mental and physical health can suffer — increasing the likelihood of clinical depression by 40% and having a diagnosed physical condition by 60%. That said, not everyone has the luxury of working until they kick the bucket, even if they wanted to, and even if it would be better for them statistically speaking. Between disabilities caused by your body slowly falling apart and the fact that many employers just don’t like old people, most employees stop work well in advance of the time their soul peaces out.
For “us millennials” we have this opportunity to determine what we want in our retirement or non-retirements, to at the least have a choice that many boomers now don’t have because of the great recession.
“The 2013 Retirement Confidence Survey sponsored by the Employee Benefit Research Institute found only 24 percent of workers at least 55 years old have set aside more than $250,000 for retirement (excluding the value of their primary residence and any traditional pensions). More startling, 36 percent of this group have saved less than $10,000. (The survey included 1,254 individuals, of which 251 were retirees.)
Looking at this reality, economist Alicia Munnell, head of the Center for Retirement Research at Boston College, says Americans’ stark retirement futures give them only three realistic options: 1) Be poor. 2) Save more money, and be a little less poor. 3) Keep working. Increasingly, more older Americans are choosing the financial equivalent of door number three.”
But millennials especially haven’t gotten the memo yet. Over a third of all Americans (36%) have not saved any money for retirement, according to a new Bankrate.com report. Sixty-nine percent — let me repeat — 69% — of 18-29 year-olds haven’t saved anything(!!!), along with 33% of 30-49 year-olds(!!!), 26% of 50-64 year-olds and 14% of people 65 and older. The silver lining here is that us millennials are also in denial of what the future holds, should we need to one take retire. “Despite their lack of retirement savings, Millennials feel more financially secure than any other age group. They feel more secure in their jobs and more optimistic about their current financial situation than any other age group.”
Meanwhile, many in all age groups seem ill prepared for retirement. A related Fed survey just released
Responses to questions about amounts saved reflect the lack of attention. Roughly 45% of those surveyed said that they had not saved any of their 2012 income. Since this figure includes all age groups, it exaggerates the lack of saving for those approaching retirement. But some other responses suggest that these older groups may be in trouble. A high percentage of those 45-59 (64%) and 60+ (42%) have not put aside an emergency fund to cover expenses for three months should they lose their job or suffer some other disruption. What is even more distressing is that only 48% of respondents said that they could fairly easily handle an emergency expense of $400. So how do the people in the Fed survey think they will support themselves when they are in their sixties and seventies and thereafter? The short answer is: work. (source: Marketwatch)
For anyone 35 and under, time is on your side when it comes to putting aside money for retirement. As our life expectancy continues to grow (yeay!) so does our need to save more money (boo!) According to this article from NerdWallet, millennials will likely retire at age 73 due to a variety of factors including student loan debt. So if you do dream of retiring, unless you take action now, you’re going to be working for much longer than you probably thought given the age of your parent’s retirements (in most cases.) Yes, 73 will be the norm retirement age for us Gen Yers.
Well-off Grads Retire 7 Years Earlier (Source: NerdWallet)
If you can graduate without a lot of loans and a relatively well-aid starter job, this makes a huge difference in your retirement savings. I admit I’m one of the very, very lucky ones as I graduated with $0 in debt and $10k in savings from a lawsuit from when I was a child. I started out ahead, which gave me the opportunity to take risks and obtain the experience needed to move up the career ladder quickly (and sometimes diagonally when needed.)
But most aren’t so lucky. College debt continues to soar (this year, Lindsey Burke of The Daily Signal points out that outstanding student loan balances reached an all-time high of $1.12 trillion – an increase of $124 billion since last year, according to the New York Federal Reserve. College graduates now leave school with an average of $26,500 in student loan debt – $4,600 more than the average student graduated with in 2001. Federal subsidies now account for 71 percent of all student aid. According to the College Board, over the past 10 years, the number of students borrowing through federal student loans increased by 69 percent.)
Meanwhile salaries are stagnant (in 2013, wages fell to a record low as a share of America’s gross domestic product. Overall employee compensation — including health and retirement benefits — has also slipped badly, falling to its lowest share of national income in more than 50 years while corporate profits have climbed to their highest share over that time.)
“The retirement prospects for the well-off grad are significantly better than the others as illustrated in the graph above. By graduating with a reduced debt load and landing a job that pays 22% more, the well-off grad can expect to retire at age 67. This is a huge departure from the other cases, and demonstrates the importance of contributing to a retirement plan early on in one’s career. Compared to the median grad, the extra $40,406 that the well-off graduate is able to contribute during the first ten years of his or her career results in a $446,452 difference in retirement savings by age 73.”
My goal is to inform others who are in their 20s and 30s (and even younger) about how to achieve the OPTION of retirement when the time comes, vs being forced to work forever, or being unable to and relegated to a state-sponsored home at the end of your life. Saving NOW is more important than saving later due to the magic of compound interest. If I knew what I know today 20 years ago I would have started investing my allowance. I’ll surely teach my children when they are young to invest their money so they learn that a dollar today can be worth many more dollars tomorrow.
I hope you’ll take a pledge with me to save MORE than your 401k match or limit each year if at all possible, and to encourage others to do the same. Millennials – we may never want to retire – but in case we have to, I want us to be able to make that choice.