Get off my lawn! Generational fights and complaints are time-honored tradition. These days, millennials are sometimes derided for being lazy, not willing to work their way up, hyper sensitive and more. Funny thing, if you go back and look at what older generations said about baby boomers, they faced many of the same criticisms.
Of course, millennials criticize boomers as well. “Not technologically adept”, “stuck in their ways”, etc. Fact is, mudslinging between generations is a feature of growing up and growing old. In thirty years, don’t be surprised if millennials are saying the same things about future generations.
Yet generations can learn from one another as well. Grandma can have her grandkids teach her how to use a computer. Or millennials can learn the ropes from their baby boomer bosses. There’s another thing millennials can learn from boomers: how NOT to retire.
As much as millennials and boomers might like to throw mud at one another, both are facing similar, and in some cases grave, challenges in regards to retirement. For millennials, there’s still some time to adjust and plan but the clock is ticking and the years will go by fast. Every year that goes by without saving for retirement makes it all the more difficult to catch up later on.
Many boomers, unfortunately, have realized just how fast the years can pass by. As retirement nears, it’s harder and harder to adjust retirement plans. That doesn’t mean boomers should throw in the towel, of course. If anything, they need to double down.
Millennials, meanwhile, need to take note of the challenges boomers are facing, and they need to learn from them. If not, millennials are going to face grave challenges when they retire.
Baby Boomers and Retirement Shortfalls
Baby boomers are now reaching retirement age. In fact, roughly 10,000 boomers are retiring per day. Unfortunately, many boomers entering their golden years are woefully unprepared. Many are aware of their predicament, with Bank Rate reporting that inadequate retirement savings is the number 1 concern among those aged 54 to 63.
Retirement has long been referred to as the “golden years.” The idea was simple. You’d work for 40 some years, build up equity, create an investment portfolio, buy a home that you could later sell for a profit, and then you’d retire. You’d kick back, relax, and live off your investments and social security.
Unfortunately, boomers have been beset by a number of challenges. Pensions have largely gone the way of the typewriter. They’ve been replaced by the 401K, but many people either do not contribute to their 401K or work for a company that does not offer one. Changes in the housing market and demographics have constrained home equity in many circumstances. And social security benefits are under threat.
Poor retirement planning leads to constrained finances. This, in turn, can make it difficult for retirees to keep a roof over their head, to pay for food, and to enjoy a good life. The table below illustrates that even with a decent amount of savings, making ends meet during retirement is difficult.
Things have gotten so bad that some boomers are having to move in with their kids. That’s most certainly going to lead to a whole new set of intergenerational conflicts, but on a much more personal level. Other boomers might have to kiss retirement in that dream retirement community goodbye, instead heading to a lower cost area.
Poor finances helps explain why the AARP found that 13 percent of retirees are either working or looking for work. While some retirees might be working simply to have something to do with their time, many need the extra income.
Those boomers who planned for retirement properly in their 20’s and 30’s (and beyond) may not be losing much sleep. Those who planned poorly, however, may be facing some dire straits. And millennials need to learn from the experiences of both by planning for retirement ASAP.
Millennials Are Already Facing Retirement Challenges
According to the National Institute on Retirement Security (NIRS), sixty six percent of those aged between 21 and 32 have nothing saved for retirement. That’s right, nothing. While you might excuse a fresh college graduate for delaying saving for retirement for a year or two, those in their late twenties and thirties and aren’t properly saving are exposing themselves to serious risks.
Further, even those millennials who are saving for retirement may not be saving enough. In fact, the aforementioned report concludes that 95 percent of millennials are not saving enough. If something doesn’t change, millennials could find themselves in a very rough position come retirement.
As you can see from the table to the right, “when” you start saving makes a huge difference. It’s not just about the number of deposits you make or your starting amount. Even starting out with only a modest amount and saving a small amount each month, the compounding impact over a long period of time can make your savings grow significantly. The longer the compounding period the better.
The Times Have Been Tough
Millennials have faced a particularly tall task when it comes to retirement planning. Unfortunately, many millennials entered the workforce during the Great Recession and the slow recovery that followed. Unemployment topped 10 percent, and as many as half of all college graduates found themselves working in jobs that didn’t utilize their education. A lot of young grads had to get by working as baristas, servers, and the like.
For many millennials, the result was a delayed career, low wages, and a lack of retirement benefits. Obviously, such conditions are far from ideal when it comes to retirement planning. Yet the economy is doing quite well right now and more people are finding better paying jobs. Millennials need to take advantage of the good times by planning for retirement sooner rather than later.
Planning for the Worst (And Catching FIRE for the Best)
Wise, prudent financial planning now could save a lot of pain and hardship in the future. For millennials, retirement planning is especially vital because social security is under threat, pensions are virtually non-existent, and some argue the long-running bull market in stocks may be coming to an end. Meanwhile, living and healthcare costs continue to rise.
Millennials should try to catch FIRE, meaning Financially Independent, Retire Early. Even if you don’t ultimately retire early, you’ll at least be more likely to retire on your own terms.
Social security, by itself, simply doesn’t provide enough for most people to comfortably live on. And in the future, it’s quite possible that it’ll provide even less. If Congress does nothing, the social security trust fund is set to run out by 2034, which would lead to a 20% cut in benefits.
Then there’s the national debt, which currently tops $20 trillion. You might wonder what national debt has to do with retirement planning but remember, someone has to pay that debt down. That “someone” could be millennials and they might have to pay for it with higher taxes.
Sadly, many boomers approaching retirement now realize their poor planning has led to inadequate retirement savings and an insecure financial future. Millennials who make the same mistake and fail to properly prepare will likely find themselves facing similar, if not worse, prospects.