Who’s thinking about retirement when they’re young? Only about a third of millennials have retirement accounts.
They’re typically not a priority for young workers – but they should be. That’s precisely the time to take the greatest advantage of compounding interest by contributing as much as your fledgling budget can afford.
A new study from the University of Missouri suggests that millennials, the youngest working generation, are not sufficiently preparing for retirement.
Few Millennials Have Retirement Accounts
Using data from the Federal Reserve’s 2013 Survey of Consumer Finances, just over 37 percent of working millennials reported having any type of retirement account.
Only 17.6 percent of self-employed millennials have retirement accounts – an important statistic given the role of millennials in the growing gig economy.
These results are in line with previous studies on millennial readiness.
A separate 2018 report by the National Institute on Retirement Security (NIRS), using U.S. Census Department data from 2014, found that 34 percent of working millennials had saved for retirement.
Meanwhile, a 2017 survey by Earnest, Amino and Ipsos found that only 31 percent of millennials were saving for retirement. The lower value may reflect an increasing problem or just differences in methodology.
Harder for Minorities
Minority millennials are having an even more difficult time. For example, the NIRS study found that 83 percent of Latino millennials had nothing saved for retirement, compared to 70 percent of black millennials, 67 percent of Asian millennials, and 60 percent of white millennials.
Surveys may disagree on the extent of the problem, but all surveys point to millennials being underprepared for retirement as a group.
Millennials have little slack in building up a retirement nest egg. Many came of age during a strong recession and faced a difficult mix of decreased job opportunities and huge student loan burdens.
As the economy strengthened, millennials began to recover from the slow start – but they still have a lot of ground to cover in a shorter time.
Millennials who could not contribute to a retirement fund in the early years after graduation lost out on extra years of growth and compounding of their retirement funds.
It’s extremely important that they take advantage of the remaining investment years.
Start with a Budget
As a millennial, how do you increase retirement readiness? It all starts with a budget that sets realistic spending limits. You can’t contribute to a retirement fund if you have no surplus to invest.
The easiest way to build retirement funds is to take advantage of any employer retirement programs such as a 401(k) plan.
Take full advantage of any employer-matching 401(k) program up to the matching limit. The matching funds are essentially free money to you. If you’re self-employed, create your own 401(k) plan or set up a suitable IRA.
The key is to have a set dollar amount or percentage of income deposited in a retirement fund every month, in whatever amount you can afford.
Treat the retirement contribution as if it were rent or a house payment – a non-negotiable monthly expense.
Once your retirement fund becomes a part of your regular budget, focus on spending control.
Keep debt at manageable levels, especially high-interest credit card debt.
Excessive credit card debt will rack up interest charges that leave you less money to devote to something else – and retirement fund contributions are likely to be one of the first things you redirect to paying off debt. Avoid the spending temptation.
So far, millennials have been fairly consistent in their lack of retirement readiness. That must change as millennials advance through their careers.
When retirement time nears, don’t be one of the laggards looking for quick fixes to years of poor preparation. Be the shining example of how millennials should properly prepare for the post-working years.
Regardless of where you plan to retire, the number one factor in ensuring that you can retire on your terms is your 401(k).
This article was provided by our partners at moneytips.com. Photo ©iStockphoto.com/D-Keine
If you enjoy reading our blog posts and would like to try your hand at blogging, click here to get started.
- 5 Ways to Take Charge of Your Life in Retirement
- Should You Rethink Whether To Postpone Retirement
- 7 Simple Retirement Savings Hacks
- 3 Unconventional Retirement Saving Tips That Won’t Totally Bore You
Join our newsletter
Subscribe to get the latest "Engineer Your Finances" content via email.