Most millennials start saving for retirement early, but they aren’t saving nearly enough.
A March 2015 study by Principal Financial Group found that 63 percent of millennials started saving for retirement at or before age 25, and 83 percent take full advantage of matching contributions offered by employer-sponsored retirement plans. However, less than one-third of survey respondents are saving enough to secure a strong retirement later on.
“Our analysis over the years has found that saving 10 percent of your salary, plus any employer match, over the course of a working career is the key to achieving a more secure retirement,” said Jerry Patterson, senior vice president of retirement services at Principal Financial Group.
It’s not that millennials don’t know they should be saving more — 74 percent believe they should be saving 10 percent or more of their salary — they just struggle planning for and prioritizing retirement saving alongside other major expenses such as rent, student loans and credit card debt.
Saving for retirement is a part of young adult’s budgets, just not a big one. It’s considered a major budget expense for only 10 percent of the millennials surveyed.
“It’s tough when you’re figuring it out,” Jen Mishory, executive director of Young Invincibles advocacy for young adults, said during a PBS NewsHour special. “Do you put that extra $100 toward a student debt payment or do you put it into a retirement account? Those are sort of the tough decisions that young people are facing.”
If millennials are to become financially stable both now and later in life, more planning is needed, starting with a reworking of monthly budgets to include both debt repayment and savings.
While many young adults may feel that’s easier said than done, it is possible. Taking advantage of an employer’s 401(k) match program is a good start, followed by a taking a new look at how money is spent each day, not just at the end of the month when bills are due.
A fall 2014 survey of millennials conducted by Merrill Edge found that 73 percent think about their long-term finances as they pay their bills, but 53 percent don’t do the same when making daily purchases. Being consistently mindful of a budget and long-term goals can help correct millennials’ financial habits to better fit those plans.
My personal recommendation for millennials who are trying to find a balance between paying debt and saving for retirement is to take it one step at a time. There might be a dozen areas of your budget that can be fine-tuned or maybe you can amp up your savings by slashing your food budget in half, but doing too much, too quickly may not only cause you to fall further behind but lead to budgeting burn out and cause you to give up on your plan altogether.
Take a series of steps to improve your financial health and occasionally indulge in a small reward for good behavior to help reduce the stress and negative emotions associated with following a strict budget.
As a generation we may be behind in saving for our retirement, but it’s not too late to start making improvements.