Why Millennials Aren’t Saving Enough Money To Retire

This is not the first time you have heard it: millennials aren’t saving enough for retirement. In fact, at the rate millennials are currently saving, some won’t be able to retire until well into their 70s. This is sometimes attributed to the fact that millennials were supposedly raised differently, or are less motivated to save.

That is, in my opinion, not at all true, though as a millennial, I am clearly biased.

There are experts who would agree, and who would also suggest that there are many other reasons that millennials aren’t saving for retirement.

Dave Alison, CFP and founding partner of Prosperity Capital Advisors in Ohio, advises millennials every day.

He tells me why, in his opinion, millennials are struggling to save for retirement, and says that everything we discussed was based on real experiences with his current clients.

The first explanation Alison gives is that millennials are burdened with too many monthly payments to be able to put aside money for retirement.

“Most millennials are strapped with debt, from student loans to credit cards and they are having a hard enough time covering their monthly repayment obligations and living expenses,” he says.

The other reason, in Alison’s eyes, is that millennials are not getting the financial education they need, such that when they are faced with debt repayment and managing bills and credit cards, they aren’t sure what to do.

“Our society has done a poor job at teaching people how to save,” Alison says. “It isn’t taught in high school or as a general education course in college, and it can be a topic that people feel embarrassed or shy to talk about to each other.”

I certainly never learned anything of financial value in school, with the exception of basic math.

And I have friends who, much to my chagrin, have been working for years at companies that offer 401(k)s with matching and still have never opened a retirement account. In their companies’ defense, though, the onus isn’t on your workplace to get you to sign up for a retirement account.

Companies should not have to be the ones to explain money management to their employees—that would be unprofessional.

The lessons have to come earlier, and if not from financial professionals or parents, from a teacher or professor.

Alison says those in their 20s are missing out on significant growth in their retirement account.

“A 25-year-old saving $100 per month and investing it in the stock market, earning a 7% annual return, would mean savings of $248,551 by the time they are 65 years of age! [At the same return] $200 per month would mean almost $500,000 in savings by age 65,” he says.

If you’re looking to get yourself on the right track when it comes to retirement savings, but have no idea where to start, here are a few steps you can take:

Open a 401(k).

This sounds like an obvious first step, but millennials are actually less likely than their older professional counterparts to open a 401(k) plan, even if their employer offers matching.

Not only that, but a lot of 20 and 30-somethings end up without a 401(k) because more people in our generation pick jobs that wouldn’t offer one to begin with; working as an independent contractor or for a small business typically doesn’t come with a 401(k).

“Even a 5% contribution will make a big difference in saving for retirement over 30-plus years,” says Alison.

“I am always astonished at how many employees have a retirement plan at work in which their employer offers a match, and they don’t take advantage of the free money.”

Write down goals, and discuss them with someone you trust.

Alison’s main advice is to “map out goals.”

He says it’s worth it to sit down and chart out how much money you want to have saved in X years. Once you figure out how much you want to save, and what you want your timeline to look like, you can calculate how much to put away each month.

After you have that number, tell someone you trust so you can hold yourself accountable, or consider automating transfers to your retirement account.

Plan your investments based on timing.

Alison says that he likes to encourage his millennial clients to set up “three buckets of money: a now bucket, a soon bucket, a later bucket.”

He explains: “The now bucket is money that is not invested and is typically made up of your emergency fund and money to cover planned expenses in the near future. The soon bucket is generally created using an after-tax account so there are no IRS penalties for accessing this money before retirement age. [This money is] earmarked for shorter-term financial goals. While you should always be funding the later bucket through your employer-sponsored retirement plan [or an IRA], once you have the now and soon bucket established, you will feel even more confident about maxing out the contributions [to your retirement account].”

Find technology that can help you.

Alison says he encourages clients to use Mint to help with budgeting.

There are also apps that help you invest, like Acorns, which keeps the change from every card purchase you make and invests it.

The one thing Alison warns against is obsessively checking your investments. If you make regular contributions to an IRA, that doesn’t mean you should check it constantly.

“If you become addicted to watching your investments each day through technologies that are available to you, you might act on impulse and make irrational decisions because of the constant need to see short-term satisfaction [instead of] focusing on long-term goals,” says Alison.

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