People of all ages should know the importance of saving for retirement, and one of the most important factors to maximize your potential nest egg is time. While it is relevant how much money you put aside each month, the numbers show that how much time you have had the investment for is the real difference maker. The sooner you start, the better, and the longer the investment money has to compound, the larger the account value. Unfortunately, young people, millennials and Gen Z in particular have not collectively taken this advice.
According to 2019 Retirement Pulse Survey conducted by the Harris Poll on behalf of TD Ameritrade, there are several reasons why:
High cost of housing
A general rule of thumb, often cited by financial experts, is that 50% of income should go for necessities, 30% for discretionary spending and 20% for savings. No more than 30% of your income should be allotted for housing. Many young people find themselves spending 50% or more for this most basic of needs, and this includes both those who have purchased homes and those who rent.
Supporting family members financially
Despite a perception by some that younger folks take advantage of the “bank of Mom and Dad,” the reality may be different. A recent study by the American Association of Retired People revealed that of the 40 million family caregivers in the U.S., one in four are millennials.
Compared to baby boomers at the same age, the average salary of a millennial, for example, is 20% lower. One factor not to be discounted is that many younger workers suffered through the most recent “great recession,” which depressed wages and the overall job market from 2009-2013 and is still showing residual effects.
Spending on non-discretionary expenses
If, in fact, young people are finding housing costs eating up half or more of their budgets, it is no wonder other, non-discretionary expenses are proving burdensome. To the extent housing costs alone are pushing the 50% income level, it should come as no surprise items like health care, groceries, utilities, car expenses and taxes contribute to little or no savings.
Although most young people realize the reality of needing higher education to propel them to success, they also understand that the increased costs of that endeavor require borrowing. According to Experian, millennials and Gen Z had the largest increase in the average student loan debt over the last year.
Spinnaker Investment Group understands how statistics are useful in establishing benchmarks and numbers can provide the framework for comparison, but most importantly, we know your investment goals are uniquely yours. We treat each of our clients with the individual attention you deserve. Allow us to show you how we can help you improve your financial outlook.