There’s been quite a bit of talk about Millennials and their financial future. Compared to Boomers who are moving into retirement now, the first wave of Millennials who will be retiring in 2050 could be facing a much bleaker future.
A study conducted by the Social Science Research Network this year entitled, “How Will Retirement Saving Change by 2050? Prospects for the Millennial Generation” found that Millennials have some distinct advantages when it comes to saving for their retirement - such as more education, longer working lives, and more flexible work arrangements. These advantages should translate to better financial understanding and more opportunities to save money.
However, the study also found that the disadvantages were significant:
- Their careers got off to a slow start because the majority of this group graduated during the financial crisis and the slow economic recovery.
- Many Millennials are employed in what’s known as the “gig economy.” This gives them a lot of freedom, but it also means they must take care of their own retirement funds. There’s no 401K for a freelancer.
- They have much higher student debt load than previous generations, which also puts a burden on their retirement saving capabilities.
These factors all contribute to a lower net worth for Millennials. In 2016, those in the 25-35 age bracket had a median worth that was 40% less than the comparable age group in 2001—a huge decline.
More recently, the annual salary of a Millennial today adjusted for inflation is an estimated 20% lower than the average salary for a Baby Boomer at the same age. [2.1] And today Millennials have an average net worth of less than $8,000, meaning they're financially worse off than any other generation before them.
There is, however, a positive side to this picture. Millennials are doing many things right. For example, they’re embracing the concepts of the FIRE system (Financially Independent, Retire Early.) They’re cutting spending and making less frivolous purchases than their parents did at that age.
What Millennials can look forward to is a very different future. Who knows what possibilities might be available in 30 or 40 years? There will be more ways to earn money, and Millennials are so used to having a side hustle, retirement may become something very different for this generation.
“Retirement is about predicting your future financial needs,” notes Martin Walcoe, President of David Lerner Associates. “Already big data is having a significant impact on our financial lives. With the wealth of information we already have access to, imagine how that could play out in the future.”
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