The generation known as the “Millennials” or “Generation Y” is in a decidedly different position with respect to their prospective retirement than the generations that came before it (“Generation X” and the “Baby Boomers”). Those born between about 1980 and 2000 are part of a much smaller birth cohort than earlier generations like the Baby Boomers who have only recently begun to retire en masse. Millennials are rightfully feeling pressure that they will have to not only fund the retirement of their elders through higher Social Security taxes, but also feel as though they will need to fund their own retirement. Seventy percent of Millennials are expecting to self-fund their own retirement, while only 41% of Baby Boomers feel the same way. Relying on Social Security might be a fallback option for many, but the current average monthly benefit is only $1,230, which is not even $15,000 per year. Consider that recent efforts in Congress have reduced the rate at which benefits increase, and you should expect the real value of Social Security benefits at your retirement to be much lower.
So, how much do you need to save to be comfortable in your own retirement? Fidelity and many others estimate you would need to save approximately eight times your final annual salary. While that might seem like a lot, if you want to get there you should start saving sooner than later. If you heard you would start working with a $40,000 annual salary when you graduate at 21, and have a $175,000 salary when you retire 50 years later, that might seem phenomenal, except for the likelihood that these represent the same real salary assuming a 3% rate of inflation. So, even under this rosy scenario, you would need to have saved $1.4 million to have a comfortable 20-year retirement. Furthermore, this savings has to be above and beyond any savings to buy a house, send your kids to school, start a business, have a rainy day fund, and at some point you might even want to take a vacation. How can you even think about making this happen?
Even starting early and passively saving might not lead you to the ‘promiseland’ of a comfortable retirement. Compound interest is clearly the best way to turn a little bit of money into a whole lot more. Unfortunately, this means starting early when you want to spend money or have to repay college debt. Furthermore, there are a lot of people out there who know that most people have little to no knowledge about how to invest their money even if they do save it. Those who rely on financial advisers and mutual funds to do the work for them have to pay fees which erode your growth rate, and leave many people with not much more than they originally saved. The Washington Post recently reported how difficult it is just to find out how much these fees add up to.
Some of you might take a decidely different approach, and look at the positive side of the increase in savings? In fact, it seems that Millennials are rather upbeat about the economy and savings when compared to other generatsions. Rather than rely on a wide-based social safety net, you now have the freedom to take responsibility for your own decisions. How much you have to save, what you will invest in, and when you will retire is now up to you! Where will all this savings go? What will it be invested in? It is impossible to know what new technologies will yield in the next 50 years or where the world will be, but you might look back at the success of earlier generations for some ideas.
Finally, why was Social Security started in the first place? This program is not even 80 years old, but what was the world like before this? Were people saving for their own retirements with the freedom they had and minimal tax levels? Or did most people just work until they died? Or were people more reliant on their children to fund their retirement for them? Does the current Social Security system buy the Millennial generation some freedom to choose where they work, where they live, and how they live? Is the cost of Social Security worth the trade off?
Questions to answer are contained in the discussion above. Look to outside sources or the links provided here. There is no one answer, but please avoid anecdotes about your own experience. Form an opinion, back it up with facts, and be brief.