Subscribe

Will you really be worse off in retirement than your parents?

Eighty percent of US workers under 30 expect to be worse off in retirement than their parents. But there are plenty of reasons for optimism. 

  • close
    People attend an investing seminar at the Society of Grownups headquarters in Brookline, Mass. A vast majority of Millennial workers expect to be worse off in their retirement years than their Boomer parents, suggests new research.
    Ann Hermes/Staff/File
    View Caption
  • About video ads
    View Caption
of

The most studied species of today — after Donald Trump supporters — has to be the millennial. (Third on this list: millennial Trump supporters, probably.)

Of particular interest is their financial standing. Standard take: It’s grim. They’re poorer than retired people and buried in student loan debt.

I have to imagine that all factors into why 80% of U.S. employees under age 30 say they expect to be worse off in retirement than their parents, according to a recent survey from Willis Towers Watson, which shared age-group results with NerdWallet.

I am not under 30, but I am a millennial (generally viewed as those of us born between the early 1980s and late 1990s). I feel stressed out by this rapt coverage, even as I add to it. What I don’t feel is that I’ll be worse off in retirement than my parents. And I don’t think you’ll be worse off, either, fellow millennials.

Our biggest advantage is time

Unless I somehow manage to retire early — an Internet-famous but generally elusive concept — I’ll be working for another 35ish years.

This isn’t math, exactly, but invested money + time = magic. You can invest $100 a month starting at age 20 and end up with significantly more money than someone who invests $500 a month (and substantially more overall) starting at age 50.

I didn’t start saving as young as I should have. I remember calling my brother from the hallway of my first job. He’s a banker and, at least in my mind, was a money expert simply by virtue of having some. I wanted to know if I needed something called a 401(k). He said yes; I ignored him.

But after a couple of years writing about why other people should save, I started doing it too. And even though I’ve had to cut back at points — blame goes to a cute but increasingly expensive child — that early start will help make up for those dips.

The other advantage is the Roth IRA, which wasn’t introduced until 1997 but should — fingers crossed — be around for the whole of our retirement-saving years. It stretches the magic of time further, by allowing years of investment growth to be tax free when distributions are taken in retirement. When I didn’t have a 401(k), a Roth was my sole retirement account. Sometimes I could afford to fund it with only $25 or $50 a month. Now, I try to contribute to it after I’ve sent enough to my 401(k) to get all the matching dollars available — a good strategy for most people.

Our parents have advantages too — and theirs might be better

One thing that gives older generations a leg up: Some have a pension, an employer-provided guaranteed stream of income in retirement, which you can imagine might make things pretty cushy.

Millennials are highly unlikely to have one of these plans. What we probably will have, despite popular belief and plenty of fearmongering, is Social Security.

In the Willis Towers Watson survey, 81% of those younger than 30 believe they’ll retire under a Social Security system that is much less generous than it is now.

I think that is, well, probably true. Social Security is not exactly flush. The latest reportpredicts the trust fund will run dry in 2034. But it also projects the program will stay afloat with tax income, paying 75% of scheduled benefits through the end of 2089.

Is Social Security a retirement plan? No. But it isn’t for our parents, either, even though they will and do receive full benefits. A reduced benefit is better than no benefit, and there’s a good chance the program will be there to help stretch what you’ve saved.

A bigger hill, but the mindset to climb it

In a way, a bit of pessimism about the future is a good thing. When you think you’re at a disadvantage, you can either quit or work harder to keep up. The research suggests millennials are doing the latter.

We’re starting to save at a median age of 22, about seven years earlier than our parents did. We’re contributing an average of 8% to our 401(k)s, in line with older generations despite the fact that we have much more time until retirement. (A fifth of us — not yet the fifth that includes me — is contributing 10% to 14%.) Millennials have actually posted the biggest improvement to their savings rate since 2013, compared with other generations.

It’s not totally a pretty picture. You might have noticed, as I did, that a lot of that research focuses on millennial workers who are saving. Poll a bunch of people who save in a retirement plan and you’ll find … they’re saving in a retirement plan.

That’s not to discount the numbers, but they don’t reflect our entire generation, notably those who don’t have a steady job, don’t have access to an employer retirement plan, or have too much in student loan debt to even consider using one. As always with surveys, some of the people struggling the most aren’t represented: Only about half of workers our age have an employer-based retirement plan, and of those who are unemployed, only one-quarter have retirement savings.

If you’re in that group, or simply want to do better, here are a few things that have helped me increase my savings rate over the years: One is being realistic about how much I need to save (a retirement calculator helps with that). Another is making gradual changes, like increasing my 401(k) contribution by 1% a year or my IRA contribution by $20 a month. And of course, the optimal time to save more is when you have extra money, which sounds obvious but few of us do it. If I get a raise, or pay off a car or student loan, I will put at least some of that newly freed money toward my future.

Arielle O’Shea is a staff writer at NerdWallet, a personal finance website. Email: aoshea@nerdwallet.com. Twitter: @arioshea.

This article was written by NerdWallet and was originally published by Forbes.

The Christian Science Monitor has assembled a diverse group of the best personal finance bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link in the blog description box above.

About these ads
Sponsored Content by LockerDome
 
 
Make a Difference
Inspired? Here are some ways to make a difference on this issue.
FREE Newsletters
Get the Monitor stories you care about delivered to your inbox.
 

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK