Millennials are under an enormous amount of financial pressure, particularly where saving for retirement is concerned. MyBankTracker recently conducted a survey of young adults aged 18 to 34 to gauge how much they’re stashing away for their golden years. The results revealed that an alarming number of millennials aren’t saving anything at all for retirement, which may have serious implications for their financial future.
Millennial retirement survey: Key findings
Using the survey data, MyBankTracker was able to spot some interesting trends in terms of which millennials are skipping out on retirement savings, which ones are making the effort and how much they’re actively saving. The most important survey findings are highlighted below:
- 44% of millennials are saving nothing for retirement. Nearly half of survey respondents said retirement wasn’t on their financial radar. It was a fairly even split gender-wise, with 44.2% of men and 43.9% of women not saving anything.
- 54.3% of non-savers are between the ages of 18 and 24. Overwhelmingly, college students and recent grads are the least likely to have a zero balance in their retirement accounts.
- Earning a higher income doesn’t automatically make you more likely to save. 50% of respondents earning between $100,000 and $149,999 annually said they aren’t saving anything. 22.2% of respondents earning over $150K a year aren’t putting anything away for retirement.
- Millennials who are adding to their retirement fund aren’t saving a huge amount. 30.4% of the millennials in the survey said they were saving $4,999 or less each year.
- Men are more likely to save larger amounts. 9.3% of respondents said they were able to save $15,000 or more for retirement annually. 12.2% of men said they were saving at this level, compared to 6.7% of women. That may be a reflection of the fact women earn 21% less than men on average.
So what’s keeping millennials from saving for retirement? We decided to take a look at what the biggest financial and mental obstacles are.
Student loans top the list of millennial money woes
It’s no secret that student loan debt is a problem in the U.S. Between 2004 and 2014, the average debt load per student at graduation increased by 56%, from $18,550 to $28,950. Over that same period, the 30-day delinquency rate increased from 11% to 17%, which suggests that grads are finding it increasingly difficult to stay on top of their student loan payments.
When you consider that between 2007 and 2014, wages for most occupations either stagnated or declined slightly, it’s no wonder that someone who’s in their early 20s and just trying to start their career isn’t thinking ahead to retirement yet. Between balancing high student loan debt with a smaller paycheck, there’s an inevitable cash crunch that makes finding anything extra to save seem impossible.
Even among grads who are banking a six-figure salary each year, saving for retirement isn’t a cakewalk as the survey findings demonstrate. When MyBankTracker isolated the income data, millennials who made between $100K-$149K a year were more likely than any other income group to be completely unprepared for retirement.
The reason? Earning that kind of salary typically requires having an advanced degree, which means adding on more student loan debt. An MBA, for example, can cost anywhere from $50,000 to $100,000 while someone who’s earning a medical degree may be looking at a final price tag that’s closer to $200,000.
Coming up with that kind of money out of pocket isn’t realistic for most people, which means younger professionals are forced to borrow in order to follow their desired career track. Someone who owes $150,000 in student loans with a 6% interest rate would be looking at a monthly payment of over $1,600, assuming they opted for a 10-year repayment plan.
That adds up to around $20,000 a year. A single millennial who’s making $100,000 would be paying around $25,000 annually in taxes. Once you subtract that and student loan payments, they’d have around $55,000 to live on. According to the Bureau of Labor Statistics, the average consumer spent $53,495 to maintain their lifestyle in 2014, which includes things like housing, food and transportation. When you look it at from that angle, it becomes more apparent why young people are running into a wall with their retirement.
Emotional spending is another barrier
While income and debt have an impact on why certain millennials aren’t saving, those aren’t the only things holding them back. Spending is also an issue.
Millennials have been dubbed the FOMO/YOLO generation, largely because of the way they approach spending. The millennial mindset centers on experiences versus things and it’s the fear of missing out that motivates them to spend their extra cash instead of planning for the future.
For instance, another recent MyBankTracker survey found that 13.7% of millennials who are actively saving money are setting it aside for travel. 5% said they were saving up to buy an expensive gadget while 4.4% said they were planning to treat themselves to a shopping spree. Overall, 36.6% of the 1,002 millennials polled said they weren’t saving anything at all, and only 9.4% said they were saving for retirement.
Again, it all has to do with the way millennials feel about their finances. Compared to previous generations, there’s more of an emphasis on living in the moment. Social media also shapes millennial spending because it breeds comparisons. A 20-something whose Twitter or Instagram feeds are full of images of their friends traveling, shopping or having amazing experiences may feel pressured to do the same, at the cost of their retirement.
How millennials can get their retirement on track
Saving for retirement in your 20s isn’t an impossible task but millennials need a strategy to make it happen. Whether you’re still in college, or you’ve been in the workforce for a few years already, following these action steps can put you on the path towards a comfortable retirement.
- Retool your budget. If you don’t have a budget yet, you need to get one ASAP. You can use a budgeting app like Mint to track your spending and income electronically or do it by hand, but the premise is simple. Add up your income and subtract your expenses for the month. If you’re spending more than you’re making, that’s a clear sign that it’s time to cut back. If you have money left over, that’s cash you can funnel into your retirement account.
- Refinance or consolidate student loans. If your student loan payments are putting a strain on your budget or you’re stuck paying a high-interest rate, refinancing can make the debt more affordable. If you have private student loans, keep in mind that you’ll need to have a good credit score to qualify. Bringing in a co-signer may be necessary to complete a refinance if you haven’t had time to establish credit yet.
- Save in your employer’s plan if you have one. A 401(k) or similar tax-advantaged retirement plan is a great tool for building up your savings over time. If you have access to a 401(k) at your job, you should be contributing at least enough to get the company match. According to a study from Financial Engines, 1 in 4 workers isn’t saving enough to get the match. That adds up to $1,336 in savings on average that they lose out on each year.
- Explore other tax advantaged options. If your employer doesn’t offer a retirement plan that doesn’t mean you’re completely shut out of saving. There are two other tax-advantaged accounts that can help you build your nest egg: an IRA and a Health Savings Account. While a traditional IRA offers a tax deduction or contributions, a Roth IRA may be better for 20-somethings who want to be able to take tax-free distributions in retirement. If you have a high deductible health insurance plan, you can supplement your savings with an HSA. The cash is designed to be used for medical expenses, but if you stay healthy, you can withdraw it penalty-free for any reason once you reach age 65.
- Find extra savings at tax time. Graduating from college and entering the job market full-time means learning how to file your taxes. For most 20-somethings, filing a return is likely to be pretty straightforward, but you don’t want to overlook any deductions or credits that could lower your tax bill. The Saver’s Credit, for example, is a credit for lower-income workers who contribute to a retirement account. Some of the most common things a 20-something may be able to deduct include student loan interest and certain expenses related to a job search. The more tax breaks you’re able to claim, the bigger your refund is likely to be. You can then use whatever money you get back at tax time to fatten up your retirement accounts even further.
Even if you have to start small, you’re better off saving something rather than nothing. A $100 a month investment in an IRA starting at age 25 can add up to more than $256,000 over the course of 40 years, which is a great incentive to put your retirement front and center sooner instead of later.
This nationwide survey was conducted by Google Consumer Surveys on behalf of MyBankTracker. Survey results are based on 1,000 responses, and all participants were between the ages of 18 and 34.