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Why Millennial Retirement Plans Don’t Look Promising At All?

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millennial retirement plans

Hashtag #millenialretirementplans exploded on Twitter revealing how young adults see their retirement prospects. And to tell the truth, it doesn’t really look promising.

Young adults born between 1981 and 1996, known as “Millennials”, are living, working and creating their families in a much different world. They face climate change, overworking, wars, and are barely making ends meet by the end of each month. Neither the hectic job market or the freelance work don’t leave much space for them to plan for the retirement on time.

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A group of social scientists have analyzed behavior and life decisions of this generation, and they’ve come to several conclusions that may be the reasons why millennials are not in a great position when it comes to retirement. If you want to learn more about the research, it is entitled “How Will Retirement Saving Change By 2050? Prospects for the Millennial Generation” and it is written by William Gale, Hilary Gelfond, and Jason Fichtner.

The researchers focused on the advantages and the disadvantages regarding retirement that millennials have compared to previous generations. The outcome of the research? Disadvantages are far longer than the advantages.

Believe it or not, the only advantage researchers managed to see was that this generation is far more educated than any previous generation, which should translate to a bigger income.

The other, half-advantage is the fact that millennials are healthier and are therefore more likely to work until an older age than previous generations. That essentially means that millennials will have more time to save for their retirement, but that they will also work for more years combined than generations before.

However, let’s take a look at reasons why millennials are facing a retirement plan crisis in the U.S., and throughout the world.

Reasons Why Millennial Retirement Prospects Don’t Look Promising

1. Not Exploiting The Full Potential Of Their Greater Education

When the majority of the millennial generation started working, they were faced with a difficult start. The financial crisis was still slowly recovering. However, it wasn’t fully recovered and it left plenty of consequences in the job market. The salaries young adults weren’t growing despite their greater education.

2. Enrolling In Jobs That Provide Little Or No Contributions To Retirement Programs

Millennials are known to be more often employed in “contingent” jobs. With the rise of freelance jobs, startup positions and the easy fluctuation of jobs, millennials are often working in companies or for projects that provide almost no enrollment in any retirement programs.

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Needless to say, these jobs make it harder for them to plan their retirement programs.

3. Lower Net Worth Than Previous Generations

Possibly because of the first two disadvantages, especially the higher education level, millennials have more student debt than previous generations making their net worths lower than those of generations before.

Compared to how much 25-35 year olds earned in 2001, millennials earned 40% less in 2016.

4. Marrying, Buying Homes And Having Kids Later In Life

Millennials are making their biggest life decisions later in life compared to previous generations. Due to longer education, as well as insecure jobs and an unreliable net worth, young adults between 23-38 years old marry, get children or buy homes much later relative to their grandparents, parents, or older relatives.

How does that impact their retirement savings? Well, if you want to ‘get settled’ and buy a house, chances are you will be paying off the house for much longer and later in your life.

5. Social Security Burden

Funding shotfalls facing Social Security and Medicare will be an inevitable burden for all millennials. As things look right now, the Social Security trust fund will run out of money in 2034, which will have to be resolved at some point.

And how is it possible to resolve such a problem? With higher taxes and/or lower benefits. None of which will affect millennials positively.

6. Future With Lower Rates Return

How things look right now, it looks like millennials will live in a future of lower rates return and a slower economic growth.

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Therefore, investment prospects of millennials won’t quite look the same way they do today. With all other factors taken into account, lower rates return and a slower economic growth all together make building stable retirement portfolios much more difficult.

7. Greater Inequality

Unless they are in the wealthiest net worth group, millennials will be more likely to be the part of the lowest paid group (the bottom 25%).

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