Saturday, April 15, 2017

How Younger Generations Are Approaching Retirement

The prospect of retirement has lost some of it’s luster. While Boomers and Gen X-ers may have toiled away at the fantasy of retiring at 65 (on the dot) and spending their golden years traveling the world and trying out new hobbies. Millennials, on the other hand, have a decidedly less romantic view of what their later years will look like. Due to longer life spans and a diminishing social security program, younger generations know that they will be working through their sixties, and likely, even their seventies. This isn’t necessarily causing a crisis of identity among younger generations - it’s a simple fact most have come to accept. But because the prospect of retirement is far less enticing than it used to be, Millennials aren’t as focused on saving up for the future.

As children, teens, and students during the recession, and the spending habits of these generations often reflect the cultural shift surrounding them during their formative years. Millennials have famously shunned overspending on products in favor of spending on experiences, and Gen Z-ers are showing signs of similar aversion to overconsumption. While a frugal mindset is helping these young generations mine the tricky terrain of budgeting during college, landing first internships and jobs and figuring out how to create a budget for themselves, their focus on personal finances is not necessarily translating into overfocus on securing their financials for later on in life.

Student Loans and Single-dom

42% of all 18-29 year olds have student debt, and many are struggling to fully understand their options when it comes to paying off their loans at a timely rate. To cope with average student debt tripling over the past 20 years, more Millennials are living with their parents and putting off adult-like financial responsibilities, including buying homes. Additionally, only 51% of unattached people in the U.S. have retirement funds. These younger younger generations stay in the nest and push off marriage and home buying as a result of debt and stress over the economy, the less likely they are to focus in on a life event that won’t affect them for another 40 years: retirement.

Luckily new platforms and service providers are cropping up to specifically help young professionals and students take control of their financial health. SItes like student loan hero and LearnVest are dedicated to teaching Millennials and Gen Zers that saving and financial planning should not be pushed off to tomorrow. Too often, saving is viewed as a nicety that people with solid jobs and credit histories can afford to implement in their lives. But in actuality, saving a little bit at a time over the course of a career span is one of the best ways to create strong financial habits, build credit, and amass a healthy savings for retirement...someday.

The most common types of retirement funds are 401ks and Roth IRAs. A 401K allows individuals to contribute pretax dollars from each paycheck. A Roth IRA allows individuals to pay taxes up front on contributions which saves on withdrawal tax payments  at the time of retirement. Most employers offer both options to all employees, and also allow employees to determine their annual contributions. Employees under the age of 50 can contribute up to $18,000 a year in their chosen retirement funds. While at first glance this number seems alarming, especially given the salaries that often accompany first jobs, but saving a little within each and every paycheck is the best way to create a stockpile. Luckily, companies will deduct the chosen contribution amount, and after a while each contribution will seem normal and likely, go unmissed. Plus, most companies offer 401K match services to individual that choose to contribute a minimum amount; not taking advantage of company matching offerings is one of the biggest blunders any individual can make. Although forgoing a chunk of monthly income may be difficult to stomach, that chunk of change is establishing a strong financial future.

If you’re completely new to the saving game, experts advise to start small: saving even just 5% of each paycheck you receive can add up over time - plus it’s unlikely you’ll miss that 5% too much in the moment. Whatever young professionals and students can do to start saving funds immediately is better than waiting until the age of 40. Retirement is changing, but what you can control is how financially prepared you are for it when it comes.

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