Millennials face many financial obstacles. Many of them have already experienced a recession, and now inflationary pressures, skyrocketing interest rates and a complicated job market are making retirement savings difficult.
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According to a recent GOBankingRates survey, 34% of young millennials (ages 25-34) have less than $10,000 in retirement savings, and another 34% say they haven’t started saving. A whopping 40% of millennials between the ages of 35 and 44 said they hadn’t started saving for retirement, and 21% had less than $10,000 in savings for her, the study found.
Experts argue that there are many reasons for this lack of preparedness. For example, they may be in debt (mainly student loans) or have competing and changing life priorities.
Rita Asaf, vice president of retirement products at Fidelity Investments, said retirement may feel far away for millennials who are still young and trying to balance their many financial priorities.
Asaf first explained that millennials have more college debt than previous generations, and paying it off can make retirement savings more difficult.
“But even saving a small amount now for retirement can increase your retirement savings in the long run,” Asaf said. “For millennials who struggle to balance both priorities, a great first step is to meet the minimum payments on all their debts and contribute enough through their workplace retirement plans to fully support their company. It’s about finding a match.”
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competing life priorities
Another issue that can hamper millennials’ retirement savings plans is competing life priorities, Asaf said, and they’re experiencing more FOMO than previous generations. explains.
“When individuals make financial decisions based on FOMO, they think more about the short term than the long term. It might explain why not,” she said.
change life priorities
Finally, changing life priorities (marriage, starting a family, changing jobs, etc.) is another reason people don’t save as much as is needed or recommended for retirement.
“As an example, many millennials in their late 20s and early 30s are starting families,” said Zogo general manager Shyam Pradheep. “But with stagnant wages and trends in income restrictions like inflation, some of the income that might otherwise have been allocated for retirement is being spent on new children instead.”
The decline in millennials’ retirement readiness was recently highlighted in findings from Fidelity Investments’ Retirement Savings Assessment Report.
According to a Fidelity report, millennials saw their savings rate drop by 0.2% in 2022, while recording the largest increase in average income since 2020, an increase of $12,500.
Additionally, a Fidelity study found that millennials are declining their share allocations according to age. This generation saw the largest decline of 2%. This means that many people may not own the right number of shares given their long-term goals.
Asked about the difference between maximum income growth and minimum retirement savings, Asaf said higher income levels do not necessarily correlate with increased retirement savings.
“Especially when there are so many additional factors that can affect millennials’ retirement savings, such as inflation, housing costs, and other savings goals,” she added.
Although millennials have higher incomes, they tend to have more conservative investment strategies, which can affect their retirement preparedness, Asaf said.
“When it comes to long-term investing, it’s important to stay focused on the big picture. In fact, as we’ve seen with pandemics, inflation and market volatility over the past few years, planning is the key to weathering any storm. It’s one of the surest ways.” You might just know how much to save and which account to put it in.
What millennials can do
But there are some steps millennials can take to close the gap of unpreparedness. For example, save as much as you can, look at your wealth mix, and reassess your retirement plans.
Fidelity recommends saving at least 15% of your pre-tax income each year, Asaf said. Make sure you have the right mix of stocks, bonds and cash based on your distance to retirement and risk appetite.
Additionally, “if possible, increasing the time to retirement has benefits such as giving you more time to build your savings or making more Social Security payments,” she said. .
Learn more about GOBankingRates
Methodology: GOBankingRates surveyed 1,005 Americans aged 18 and over nationwide from January 16-18, 2023, asking 20 different questions. (2) How much do you currently have in your emergency fund?; (3) How will you need to pay in the event of an emergency (medical, housing, etc.)?; (4) Currently retired? (5) Do you have any of the following debts? (check all that apply); (6) Are you currently in debt (student loans, medical loans, car/personal loans, credit card, etc.) (does not include mortgages); (7) How often do you argue about money concerns when you have a significant other?; (8) What financial topics do you discuss with your child? (select all); (9) How often do you discuss personal financial matters with family and friends?; (10) On average, before you and your family receive your next payment (11) What are you most worried about about your finances?; (13) What would be the first thing you would do if you received $5,000 in an unexpected bonus?; (14) If you won the lottery ($100 million), which of the following would you choose?; (Select all that apply); (15) Will you ask family and friends to borrow money or use up your credit card? (16) What would you like to know more about to improve your finances?; (17) Do you consider yourself a spendthrift or a saver?; (18) In which categories do you spend too much money? (select all that apply); (19) How much do you spend on monthly self-care?; (20) What are your top financial priorities? GOBankingRates is PureSpectrum’s research platform was used to conduct the survey.
This article originally appeared on GOBankingRates.com: 3 Reasons Millennials Are Not Saving Enough Money for Retirement