Published in: Buying Stocks | Jan. 4, 2019

You Won't Believe How Many Millennials Have No Retirement Savings

By:  Lyle Daly

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Saving for retirement is an area where millennials are falling short of where they need to be. Find out just how bad it is and how you can keep your retirement on track.Young Woman Holding Empty Piggy Bank

Image source: Getty Images.

When you’re young, it’s tempting to put off saving money. Retirement doesn’t exactly seem like a pressing issue, and you figure that you’ll get serious about saving sometime in the future, once you have more disposable income.

The problem with that philosophy is that starting later is always going to be easier than starting now, which is one reason why a full two-thirds of millennials have no retirement savings to speak of. If you’re one of the many millennials who wants to retire earlier than average, then you’ll need to avoid falling into the same trap.

What the numbers say

According to research done by the National Institute on Retirement Security, 66% of millennials haven’t saved any money for retirement. And even the millennials who do save for retirement aren’t putting away enough, as 95% of those in the generation save less of their income than financial experts recommend.

Why is saving for retirement so uncommon among millennials? Two particular reasons stand out:

  • They don’t have access to employer-sponsored retirement plans.
  • They have significant debt to pay off.

The first reason is a biggie, because so many Americans use employer-sponsored retirement plans as their primary way of saving for retirement. While 66.2% of millennials work for an employer offering this type of plan, only 55% of those millennials are eligible to sign up. The rest can’t, often because they’re part-time employees or because they haven’t been at the company long enough.

When they have the opportunity, 94.2% of millennials participate in employer-sponsored retirement plans, so not having this option available clearly impacts the number of young adults saving for retirement.

Of course, anyone can set up an individual retirement plan (IRA) and save on their own, but that brings us to the next challenge millennials face -- debt, especially student loan debt. When you have tens of thousands of debt left to go, it stands to reason that you’re more preoccupied with paying that off than saving for retirement.

Why you shouldn’t play the waiting game

It’s not that millennials don’t care about retiring. In fact, they plan to call it a career early, as TD Ameritrade found that the average age millennials want to retire is 56. But the average age when they planned to start saving for retirement is 36, which makes those lofty early-retirement goals unrealistic.

There’s a proven formula for building wealth. Put your money in accounts that earn you a return and let compound interest get to work. Time is your greatest ally in saving for retirement, and the sooner you start saving, the more your money can grow.

Thanks to compound interest, your money can grow significantly over the years, but when you start greatly affects how much you earn. You can look at compound interest calculations to see this in action. Here’s a quick example from those calculations -- if you put $1,200 per year in stocks and earned the market’s average historical return of 9%, you’d have:

  • $306,646 after 35 years
  • $479,642 after 40 years

By getting to work five years earlier, you’d only be investing $6,000 more to make $172,996 more. That’s why waiting is the worst thing you can do. The years at the end are always when you make the largest gains, and each year you wait subtracts a chunk from your return.

Getting started with saving for retirement

If you’re wishing you could go back in time and start saving 10 years ago, you’re not alone. Since no one can do that, the most important step to take is to begin right away. Here’s how:

  • If you’re eligible for an employer-sponsored retirement plan -- Sign up and allocate a set amount of each paycheck to your retirement. Most companies will match your contribution up to a certain percentage of your pay, so try to at least max that out.
  • If you’re not -- Open your own IRA. You can start by checking out the best online stock brokers for IRAs to find one you like.

Once you’ve opened a retirement account, the key is to fund it consistently. Automating your contributions is the best way to do this, so you don’t have months where you forget or decide you’d rather spend the money on something else.

Even if you can only contribute $50 or $100 per month to start, that’s still $600 to $1,200 per year. Over time, your nest egg will grow, and you’ll be able to increase your contributions.

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