Millennials haven't been in the workforce for that long, yet a large number of us already are getting the ball rolling in planning for retirement, according to new data out from the 18th Annual Transamerica Retirement Survey of Workers. That's good news, since Social Security is only designed to handle about half of retirement spending and the demise of workplace pensions has left us more reliant on our savings for retirement income than previous generations.
If you don't feel like reading the full 118-page document, I've distilled the main takeaways into three broad ways my generation is planning for retirement.
1. We're saving more and earlier
According to Transamerica's research, 71% of millennials are saving for retirement. We're saving a median 10% of our salaries, and our median age for starting retirement savings is 24. By contrast, members of Generation X are contributing a median 8% of their salaries to retirement savings and started saving at a median age of 30. Baby boomers are contributing 10% of their salaries to retirement, and 35 is the median age they started saving toward retirement.
There currently may be a higher proportion of Gen Xers and baby boomers saving toward retirement -- 80% and 85%, respectively, compared to 71% of millennials -- but we're starting earlier and saving at rates comparable to, or higher than, previous generations. To give you a sense of what that extra time is worth, suppose that someone starts saving 10% of the median household salary ($57,617 in 2016 inflation-adjusted dollars, according to the Census) at the age of 24, never receives a raise or changes their deferral (as if!), and achieves a 7% annual return (within the stock market's historical averages) after inflation. At age 65, they'd have a whopping $1.3 million.
Someone who did all the same stuff but started saving at 30 -- the median age Gen Xers began -- would have just under $858,000. A third person doing the same but who started at 35 -- the median age for baby boomers -- would have just over $588,000.
Those extra years are crucial because they give you much more time for your money to compound.
2. We plan to work more in retirement
Fifty-eight percent of millennials plan to work in retirement compared to 54% of each other generation. That likely is due to the recognition that even those extra years won't be enough to guarantee a financially safe retirement. In fact, 19% of millennials anticipate working full-time in retirement compared to just 11% of Gen Xers and 8% of baby boomers.
Given that a similar proportion of millennial workers (18%) expect to live to 100 or later, it may make sense to extend full-time work well beyond the age at which past workers typically retired. That boosts our retirement savings two ways: by giving us more time to contribute and reducing the length of time we'll be drawing down our savings.
Consider that the 4% retirement rule -- a common rule of thumb that suggests you draw down your retirement savings by 4% the first year and adjust for inflation in subsequent years -- was designed with 30 years of retirement in mind. Someone expecting to live to 100 is facing 35 years of drawdown if they stop working at 65 -- meaning that they will have to either modify the 4% rule to, say, the 3% rule or risk running out of money at the end of their life.
Work in retirement provides an easy way to bridge that gap without compromising retirement spending. We also know that working later appears to have a life-prolonging effect (seriously), so it makes sense from a health perspective, as well.
3. We anticipate working for a different boss when we retire
Many of today's retirees were forced into early retirement due to layoffs and "organizational changes," leaving them with a median retirement age of 62 and insufficient funds for those extra unexpected years without income. Perhaps in recognition of this reality, only 46% of millennial workers would prefer to work for their current employer in retirement, while 24% want to change employers and 29% hope to start their own businesses. (In all fairness, some of that may also be attributed to the fact that we're relatively early in our working lives, so we still have some planned career moves.)
Expecting to work in retirement is different from having a plan for it, and Transamerica's survey indicates that my generation understands the crucial difference. Millennials were more likely than other generations to report they are "keeping my job skills up to date" (49%), "networking and meeting new people" (28%), "scoping out the employment market and opportunities available" (22%), and "going back to school and learning new skills" (22%) -- all in an effort to remain competitive and have options.
Given both the past experience of current retirees and the fact that our economy continues to transition toward less-stable work, staying ahead of the curve is a wise move.
We're in it for the long haul
There are, of course, plenty of obstacles still left to overcome. As a generation, we face crushing student loan debt and a tough job market -- but we're taking the retirement challenge very seriously. And we're setting ourselves up for long-term success. If you aren't already setting aside money for retirement and haven't brushed up on the newest best practices in your current or preferred job field, now's a great time to start.