by Lyle Daly | Jan. 4, 2019
The Ascent is reader-supported: we may earn a commission from offers on this page. It’s how we make money. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation. Terms may apply to offers listed on this page.
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.
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.
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:
Find the best stock broker for you among these top picks. Whether you're looking for a special sign-up offer, outstanding customer support, $0 commissions, intuitive mobile apps, or more, you'll find a stock broker to fit your trading needs.
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. 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.
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:
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.
Once you’ve chosen one of our top-rated brokers, you need to make sure you’re buying the right stocks. We think there’s no better place to start than with Stock Advisor, the flagship stock-picking service of our company, The Motley Fool. You’ll get two new stock picks every month from legendary investors and Motley Fool co-founders Tom and David Gardner, plus 10 starter stocks and best buys now. Over the past 17 years, Stock Advisor’s average stock pick has seen a 582% return — more than 4.5x that of the S&P 500! (as of 5/3/2021). Learn more and get started today with a special new member discount.
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:
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.
Over the long term, there's been no better way to grow your wealth than investing in the stock market. But using the wrong broker could make a big dent in your investing returns. Our experts have ranked and reviewed the top online stock brokers - simply click here to see the results and learn how to take advantage of the free trades and cash bonuses that our top-rated brokers are offering.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers. The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.
The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters.
Copyright © 2018 - 2021 The Ascent. All rights reserved.