A longer and longer retirement is a growing concern for Americans.
According to an April survey from national pollster Gallup, 64% of respondents are now concerned about not having enough money for retirement. That's up 4% from the prior year, and it represents Americans' greatest financial fear. Furthermore, a majority of respondents (51%) now worry about simply maintaining their current standard of living. That's up 5% from last year.
Millennials are out of touch with reality
However, if there's one group of consumers who should be most worried about retirement, it's millennials. To be clear, this doesn't ignore the fact that baby boomers have retirement issues of their own. As we've examined previously, 45% of baby boomers have no retirement savings, and another 30% have postponed their retirement plans, according to the Insured Retirement Institute. Yet, it's millennials who appear to be the most out of touch with retirement and retirement goals based on the latest survey conducted by GfK on behalf of Wells Fargo's Wealth and Investment Management Market Research Center.
The 2016 Millennial Study conducted in April questioned just over 1,000 millennials between the ages of 22 and 35 to gauge their outlook and preparedness for retirement. Some of the answers Wells Fargo received were downright frightening, and they point to a generation that could be very much out of touch with reality when it comes to retirement.
Here are five of the most surprising statistics from this latest report.
1. 64% of millennials don't believe they'll reach the psychological $1 million savings mark by retirement
One of the most interesting findings of the study is that despite 59% of millennials already putting money aside for retirement, a whopping 64% don't believe they'll ever reach the psychological $1 million savings mark to support a multidecade retirement. Even more ironic, millennials would like to retire by age 59 instead of the average age of 65, meaning their nest eggs would be leaned on even more than today's retirees have leaned on theirs. When they were questioned, 64% of millennials noted that they were simply not making enough money to save for retirement.
Yet, what's really overlooked, here, is how little needs to be saved each week if you want a chance at reaching $1 million in savings. Using Bankrate's investment calculator, and assuming the stock market returns its historical average, including dividend reinvestment, of 7% per year, a millennial would need to sock away about $60 per week for 45 years in a tax-deferred investment account to wind up with about $1 million at retirement. Note, this example assumes no upward mobility in wages, which is unlikely. In other words, as you age and gain experience in your field, you're likely to be paid more, meaning saving $60 a week should be easier as you get older.
The real key, here, is starting to save as early as you can since time is your friend. If you had 50 years to save instead of 45, you'd only need to sock away $42 per week. What millennials fail to realize is that these savings figures are actually quite achievable.
2. 74% of millennials don't expect Social Security will be available when they retire
With this data point, millennials show they're guilty of perpetuating the most prominent Social Security myth of all. Namely, that Social Security is going to go bankrupt or fail to make benefit payments at some point in the future.
The reality is that Social Security isn't in the best financial shape, but it's in no danger of going bankrupt for millennials, or even multiple generations after that. It will be paying benefits to millennials when they retire.
The real concern for Social Security, based on the latest Social Security Trustees Report, is that the Old-Age, Survivors, and Disability Insurance Trust is set to burn through its $2.8 trillion in spare cash by 2034. At this point, if Congress hasn't implemented a fix to raise payroll tax revenue, cut benefits, or some combination of the two, benefits could be slashed by as much as 21%. Essentially, millennials who plan to be heavily reliant on Social Security could be in for some disappointment, but they're just plain wrong to think Social Security won't be there for them at all when they retire.
3. Only 52% of millennials have a retirement plan
Another interesting point is that while 69% of millennials believe having a retirement plan, such as a 401(k), is "extremely important" or "very important," just 52% of millennials currently have one. It would appear there's a major lack of follow-through on the part of millennials when it comes to securing their financial future.
One of the easiest ways to fix this problem, while also holding millennials accountable for their saving habits, is to implement weekly, bi-weekly, or monthly withdrawals from a checking account or your payroll that head directly into a tax-advantage retirement plan, such as a 401(k), Traditional IRA, or Roth IRA. A pre-determined weekly or bi-weekly distribution would be ideal since it would force you to save for your future without having to remember to transfer funds each week.
Furthermore, if you happen to work for an employer that offers a 401(k), your company may match a percentage of your annual income. Taking advantage of this match is almost always a smart move since it's essentially free money.
4. 46% of millennials do not keep a detailed monthly budget
Keeping a detailed monthly budget is a veritable necessity to maximizing your ability to save money. However, according to the latest Wells Fargo study, 46% of millennials aren't keeping a detailed monthly budget. Of the 46% who don't keep a monthly budget, a third said it wasn't a priority, while 37% noted they didn't need one.
The problem with not making a budget a priority, or believing you don't need one, is that without a budget, it's practically impossible to understand your cash flow. And if you don't understand your cash flow, making adjustments to optimize your ability to save is very difficult. Not having a budget could be exactly what keeps millennials from reaching a very achievable $1 million in savings.
The good news for millennials who've grown up around technology is that budgeting tools can easily be found online, with most even guiding you in preparing a workable savings plan. It probably wouldn't take but 30 minutes each month to set up and review a budget to ensure you remain on track. The bigger challenge is staying accountable for your spending and saving habits. This is where surrounding yourself with like-minded people and being "SMART" (which stands for specific, measurable, achievable, realistic, and time-bound) comes in handy.
First, you'll want to make sure everyone within your household is abiding by a budget. If they are, you're more likely to stick to yours as well. Also consider meeting up with like-minded friends who have similar financial goals as you and discussing your strategies.
Most importantly, make sure your saving and retirement goals are "SMART." That way, you can measure your progress and adjust your spending and saving habits as needed to stay on track.
5. 52% worry about losing their retirement savings in the stock market
Lastly, 59% of millennials pointed out that they're worried about investing their money in the current economic climate, with 52% fearful that the volatility in the stock market will cause them to "lose their retirement savings in the market."
Volatility is nothing new with the stock market. Since 1950, based on data from Yardeni Research, the S&P 500 has had 35 corrections of at least 10%, when rounded to the nearest integer. But here's the most interesting stat of all, which millennials are overlooking: In all 35 of those instances, within a matter of weeks, months, on in rarer cases years, the entire correction was wiped out by a rally. Historically, stocks tends to rise for longer periods of time than they fall, which has led to the average return for stocks of 7% over the long run, including dividend reinvestment. Chances are that millennials will struggle to find better investment opportunities than stocks, especially with global yields in developed markets hitting multiyear, if not all-time lows.
The solution is pretty obvious: Millennials need to consider being invested in the stock market. It doesn't mean they have to buy individual stocks or make risky moves. Instead, the most risk-averse millennials could purchase index funds or ETFs to help mitigate the volatility their portfolios experience. By investing in the stock market, millennials will give their nest eggs the best chance at reaching $1 million, or more, by the time they retire.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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