Dear Fellow Millennials: Retirement Isn’t as Far Off as You Think
When you're saddled with student loans and other debt and you have fixed monthly expenses to boot, how on earth do you save for retirement?
The other day, I met a close friend of mine for lunch. We were chattering away and got caught up on how life had been treating us lately. Eventually, those minor life updates transformed into a conversation filled with complaints about just how expensive real life can be.
“It’s stressful!” I told her over our sandwiches, “Between our student loans, our mortgage, and saving for retirement, I feel like we hardly have any money left each month!”
“Retirement?” she responded with a puzzled look on her face. “Are you seriously saving for that already?”
Admittedly, I was somewhat shocked by her response. With the amount of financial education resources available today, I had assumed everybody my age was tucking away pennies in order to be able to retire someday.
So I was surprised that she seemed so blasé about planning for her own financial security later in life. However, after bit of thought, I could begin to understand it. After all, life is more expensive than ever for us twenty-somethings.
Recent reports show that the average 2016 college graduate will walk off that graduation stage with a diploma in one hand, and a hefty student loan bill of $37,172 in the other.
The average salary for a college grad is somewhere around $45,000. So it can be tough to make ends meet from month to month – even with that respectable pay. So, chunking away funds to be used years and years down the line can seem impractical at best.
But, beyond the cost of an education today, there’s another problem in the mix when it comes to millennials and retirement: we were raised in the age of instant gratification. We want it, and we want it now. We grew up having immediate access to everything. Think about it: We literally have the internet in our pockets.
And while there’s a lot to be said for the convenience of that immediate access, it’s a hindrance when it comes to patience and planning.
I hesitate to completely generalize millennials. But for the sake of simplicity, let’s just agree that most of us truly aren’t interested in the delayed satisfaction that will eventually come along when we’re 70 and financially secure. We’d rather have the nice car and that Instagram-worthy vacation right now. We can worry about the rest later.
There’s only one problem with this mindset: Retirement is expensive. Conventional advice says that you should plan to have a $1 million nest egg by the time you retire. And, while that number is likely enough to make your eyes wide already, let’s break it down with a simple, static example.
If you started saving for retirement at 25 years old and wanted to have $1 million by the time you’re 66, you’d need to save $8,278.16 per year at a five percent effective interest rate.
So you’d need to be setting aside $673.54 per month when you consider compound interest. That’s about $700 every single month that’s not going toward your mortgage, your car payment, your student loans, or even your emergency fund. It’s simply getting tucked away for a rainy day – a rainy day that’s going to happen 40 years from now.
Granted, you will (hopefully) have social security and a company match on your retirement fund to help soften the expense a bit. But the point remains the same. Retirement is something that you need to be actively saving for — as soon as you possibly can.
After all, the earlier you start saving, the more your money will earn you. Believe me, I know it’s not necessarily a fun thing to throw your money at. It’s not an exotic vacation or a remodeled kitchen. But it’s still undeniably important.
No, you may not need that money tomorrow. But you’ll definitely need it eventually. So make sure you have it when that time comes.