“Retirement” Is Not What It Used To Be: 3 Reasons Why You Should Still Plan For It
If you search “millennials and retirement” on Google, the first two articles that come up couldn’t have more conflicting headlines. CNN Business and CNBC both have recent articles about the status of retirement savings for Millennials. Interestingly enough, they present opposite findings. The first article’s headline reads:
The second article, on the other hand, has a different take:
While there’s no apparent consensus, the articles do raise an interesting question: How prepared are Millennials for their financial future?
Deloitte performed a survey to get answers straight from the source, asking Gen Z and Millennials about the priorities and values on their mind. Financial concerns were one of several themes. The financial concerns results are summarized below ¹ :
According to the survey, Gen Z and Millennials are focused more on short term financial stability, even if that means taking 2nd jobs to keep up with their expenses and simply living paycheck to paycheck. For about ⅓ of Millennials, a comfortable retirement is not an expectation. Again, that raises significant questions: What unique challenges are Gen Z and Millennials facing? What can they do to secure a better financial future? Why is planning for “retirement” now important?
Here are 3 reasons why I believe you should plan for retirement now:
1) “Retirement” is not what it used to be.
An article written by PhD and Nobel Laureate Robert C. Merton, who is also the resident scientist at Dimensional, put it this way:
“In the US, for example, a combination of limited Social Security funding and a reduction in the number of defined benefit (DB) employer plans—historically, the primary retirement savings vehicle for many—is causing investors to make decisions they have never had to face about how to save for retirement.”
Social Security and pensions, for Millennials’ parents and grandparents, were able to provide guaranteed lifetime income streams. That’s just not the case anymore. Defined Contribution (DC) plans have become the main source of retirement savings for the newer generation of workers. The shift to DC plans puts the onus on individuals to take greater ownership in saving for retirement.
There’s also a blatant discrepancy between what people think they need and what they actually need to maintain their lifestyle throughout their lifetime. A recent survey from Schroders finds Americans think they’ll need $1.1 million to retire comfortably.
The reality is this: You would need approximately $2.5M today to generate $100,000 per year throughout retirement. For a Millennial, factoring in inflation, that number will need to be more like $5M to achieve $100,000 of annual retirement income.
However, it’s important to consider that other sources of income like real estate, pensions, annuities, and Social Security can also contribute to a retirement income plan. Having a plan is key! A target savings goal gives you a plan to work towards and make changes as needed. If you don’t have a target, you will get somewhere - but it likely won’t be where you want to end up.
2) The only certainty is uncertainty.
Millennials were coming of age just in time for the Financial Crisis in 2008. Additionally, for this generation, wages are lower relative to home prices than in the past. Economic uncertainty and pessimism are natural viewpoints for Millennials. Thinking about saving $1M, let alone $5M may feel unattainable. Creating margin and crafting a plan for the future (knowing that it will change!) is the best thing you can do in your financial life - your future self will be grateful you did so.
Things will change quickly, and the reasons are myriad: health, job loss, shifting priorities, needing to support family members, etc. Saving with retirement in mind provides optionality to pivot accordingly when it otherwise wouldn’t be possible.
3) You will have a more significant impact.
At Redeem Wealth, we believe “retiring” is being free from the need for a paycheck, not retiring from service to others. When you become financially independent, you may continue to work, but it’s your choice! Especially later in life, the ability to give your time, expertise, and advice without needing a paycheck is a profound gift. It’s a good thing to plan on doing meaningful work for the rest of your life! It’s also good to plan for retirement. It will allow you to prepare for the changing financial landscape of “retirement” decades from now, as well as the flexibility to meet the unexpected head-on.
Retirement for you.
Planning for retirement should be personalized to your unique values and circumstances. That’s why articles and books with stats on retirement readiness and how-to’s for retirement are generally unhelpful - there’s no doubt that some (or all) of it won’t apply to you! Working with a financial planner who takes the time to get to know you, your loved ones, and your values will help you take steps to prepare for retirement in a way that is truly meaningful to you. Schedule a time to meet with the team here at Redeem Wealth to see if we are a good fit to help you plan for retirement.
