Retirement planning is important for everyone, no matter what age; however, millennials may feel the biggest impact for not saving for retirement.
Millennial’s are facing problems saving for retirement than previous generations who had pension plans.
The term “millennials” – occasionally referred to as “Gen Yers” – refers to individuals who have reached adulthood in the 2000s. When it comes to retirement savings, millennials are in an interesting dilemma.
We already know – thanks to the 2015 Barometer Poll – that many individuals are not saving for retirement as much as they need to and will need to work past the average retirement age of 62 (age according to US News and World Report). This means that the oldest millennials are roughly 34, and will be retiring in less than 30 years. For a generation that represents one-third of the working population, retirement savings is especially important. Simply for the fact that they won’t be able to fall back on one thing: social security.
The Social Security Problem
Social Security is a federal insurance program that allocates benefits to the unemployed, disabled or retired. Typically, the individuals receiving these benefits are over the age of 65. Social Security is funded through payroll taxes and is managed by the government. The Social Security Administration estimates that in the last year over $863 billion in benefits were provided to over 59 million Americans. Amounting to roughly $14,627 per individual in annual benefits ($1218 monthly).
Social Security benefits aren’t a replacement for retirement savings. They certainly can help keep a retiree financially afloat in his or her later years. The problem is, according to the 2015 Social Security Annual Report, that the government has had a rough time paying benefits as the rate of Social Security spending has exceeded its income. This report predicts that, as the number of Social Security beneficiaries continues to grow, the cash-flow deficit will increase.
This means that many millennials may not see social security benefits, as it continues to head toward bankruptcy. The good news is that Social Security is necessary to care for America’s elderly population. It is unlikely that millennials will see no benefits; however, the benefits they may see could be a lot less than what current beneficiaries receive.
The future of Social Security is unstable, it is necessary for millennials to take retirement savings into their own hands as soon as possible.
Steps to Saving for Retirement: Millennial Edition
The first step is to become financially organized. Make sure you have all of your financial tools in a place where it’s easy to ascertain your net worth. A financial planner can help you with this.
One solid financial tool that millennials underestimate is life insurance. Having a term life insurance policy is an ideal way to protect your family and your loved ones. If you were to pass away, you death benefit could be used to pay for your debts and to provide a foundation for your spouse or significant other’s retirement.
It is also important for millennials to begin thinking of ways to pay down their debts while continuing saving for retirement. This may mean taking advantage of technology: automating all of your payments (student loans, rent, car payments) is a good first step to making sure you’re paying your debt. You can also automate your Roth account or your 401(k) to ensure that you are allocating finances to these accounts.
Additionally, you should be consistently setting financial goals for yourself – but not in terms of dollar increments. Setting goals based on percentage of income, rather than dollar amounts, is an excellent way to assess how well your retirement savings are doing.
Millennials also tend to neglect stocks as a viable savings option due to the market’s perceived volatility. Speaking to a financial planner can help you invest the right amounts of money into your retirement, savings and stocks so that you do not have to rely on Social Security as an income supplement.
Things to Keep In Mind
Everyone’s ideal retirement savings scenario is different. You may decide that retirement isn’t for you or that you want to work part time through your retirement. The important thing to keep in mind that while everyone’s retirement savings plan looks different, planning for your future financial strength is crucial.
Millennials will most likely not have to panic for fear of completely losing their Social Security benefits; however, it always better to be prepared with a solid retirement savings plan. The earlier you begin saving, the better! Speak to one of our financial planners today or browse the blog for more tips and tricks to turbo-charge your retirement savings.