Forty years may seem like a lifetime — it’s approximately how long most millennials have to plan and save for retirement. But just ask any of the 10,000 baby boomers who are turning 65 every day: time flies.
What is your 40-year financial forecast? Chances are that you don’t have one yet. It’s a mighty difficult question to answer. So difficult in fact, few economists would even dare to offer such a long-term forecast. In 40 years, economies can rise and fall, new technologies can change our lives, and unanticipated trends will inevitably emerge.
Consider how much has changed since 1973, when the Dow closed at 850, gas was 40 cents per gallon, and the average rent was $175. Who would have guessed that the Dow would now be trading at approximately 16,000, gas would rise to an average price of about $3.25 per gallon, and the average American would be paying about $1,073 per month in rent? In 1973, electric typewriters were an office luxury and personal computers hadn’t been invented. Today’s everyday technology like smart phones, tablets, and GPS were the stuff of science fiction back then.
As hard as it might be, every millennial needs a 40-year vision for planning and saving for retirement. The 14th Annual Transamerica Retirement Survey found that, unlike preceding generations, 70 percent of millennials expect to self-fund their primary source of retirement income through 401(k) or similar plans or through other savings and investments. Just 11 percent expect to rely on Social Security and even fewer (four percent) on old school pension plans. As a point of comparison, only 41 percent of baby boomers expect to self-fund.
For millennials, a do-it-yourself retirement requires starting as early as possible to take advantage of the long savings horizon and the opportunity for investments to grow over time. This involves making saving for retirement a financial priority along with other competing objectives such as getting married, starting a family and/or buying a home. The longer you wait, the more difficult it likely will be to catch up later on your retirement savings goals.
Four tips to get started include:
- Consider your benefits options carefully. When evaluating job offers, factor in retirement benefits as part of your total compensation package. Sixty-one percent of millennials prefer a job with higher pay over excellent retirement benefits when asked about a hypothetical job offer. They may be overlooking a meaningful aspect of their compensation.
- Start saving now and save consistently. Only 41 percent of millennials are saving for retirement in a 401(k) or similar plan. By getting into the habit and saving regularly, millennials can improve their retirement outlook. Even small amounts can add up over time.
- Calculate a retirement savings goal. Just 8 percent of millennials say that they have completed a calculation or worksheet to determine how much they need to save. It’s impossible to chart a course without a destination in mind.
- Formulate a written strategy. Only 11 percent of millennials have a written plan on how they will go about achieving their retirement goals. It’s also extremely hard to reach any destination without a road map to get there. This strategy should be updated periodically as goals and circumstances will inevitably change over time.
Over the next 40 years, more changes and challenges will emerge that we haven’t even dreamed of yet as the global economy rapidly evolves. These decades also promise to bring opportunities for your career, families, and personal growth as well as unforeseen challenges for you to overcome along the way. One thing will remain certain, though: time flies, so be sure to keep your forecast up-to-date before those 40 years pass you by.
Catherine Collinson serves as President of the Transamerica InstituteSM and Transamerica Center for Retirement Studies®, and is a retirement and market trends expert and champion for Americans who are at risk for not achieving a financially secure retirement. Catherine oversees all research and outreach initiatives, including the Annual Transamerica Retirement Survey.
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