Sure, you are young; and in relatively good health. And the fact of the matter is that you really aren’t earning a whole lot of money from your entry-level job. That’s why you are struggling to make ends meet. And the rent, utilities, car payment and insurance, credit cards, cell phone, and gas to and from work are basically sucking up your entire check. And with the school loan payments, you barely have any money left over for happy hour with your co-workers or for partying on the weekends with your friends.
See also: How to Save for Retirement
What about your retirement? Are you making sure that you save a little money for your future? No. Well, you are not alone.
According to a recent survey, millennials are “slipping into the red” because they lack the sufficient income to save for retirement. And their savings rate has plunged to negative 2 percent. In other words, they are spending well beyond their means, while failing to plan for retirement. To make matters worse, overall, most U.S. workers pass on over $20 billion each year in retirement savings because they don’t take advantage of their employer matching programs, according to a similar survey. The following explores why it’s important to save for retirement and how much you need to save.
The Tarnished Years
The good news is that medical and technological advances, by most accounts, have increased life expectancy. According to a recent study, “Older Americans 2000: Key Indicators of Well-Being,” the number of Americans age 65 or older increased “tenfold in the last century and the elderly are living longer, in more comfort and in better health than ever before”.
The study, which gathers for the first time data from various U.S. government agencies “to provide a unified picture of the overall health and well-being,” also found that life expectancy for Americans aged 65 in 2000 was 18 years, on average. In 1900, those aged 65 or older only could expect to live, on average, another 12 years after retirement. But the bad news is that almost one in four elderly Americans is not enjoying their golden years. Why?
Well, there are a variety of reasons, including a disability or other health issues. But the most common factor is because “increasing numbers of Americans who are saddled with debt and whose savings evaporated during the recent bust” can’t afford to retire gracefully, says ABC News. But despite the unfortunate normalcy of being forced to work during retirement, one in four workers still let go of at least part of their company match, according to a new report by Financial Finesse. And when it comes to millennials, the statistics get worse.
As wonderful as it is to be young without a care in the world; it is a fact that one day getting older will become a reality. But many of today’s young people are more concerned with living in the now rather than planning for the future.
“There are many practical and emotional reasons why we should opt for delayed gratification and squirrel a portion of our paycheck away in 401(k) and other retirement accounts,” says Joe Udo, a Retire By 40 blogger and U.S. News and World Report contributor. “If you think saving is tough now, just think how much harder it will be when you’re 65 years old.”
According to a Moody’s Analytics’ study, millennials had a negative savings rate from 2004 to 2009, bottoming out in 2007 with a deficit of about 15 percent. They recovered in 2009, according to Moody’s, and managed to stay above water until 2012, “when they slipped back into the red”. And the Financial Finesse study also found that just a little over 25 percent of millennials had even used a retirement calculator to figure out just how much money they’ll need to retire.
“[Millennials] are the generation that are the least likely to be on track for retirement. They’re the generation that will have the most changes with retirement programs changing, pensions going away, taxes going up, and they’re ignored,” Erik Carter, a certified financial planner with Financial Finesse, told Forbes. “People aren’t paying as much attention to them and they are falling behind and falling further behind.”
Carter added that this circumstance has been caused by a variety of factors: “this is the generation who came of age during huge market downturns, who is burdened (if not crippled) by student loan debt, and who — worst of all — feels too young to even worry about retirement in the first place". So how much do you need to save for retirement?
Greg Stein, director of financial technology for Financial Finesse, told Forbes that employees should start by understanding their company retirement plans. Some employers will match contributions dollar for dollar up to a certain percentage or dollar amount, Stein added.
“Other times they match a reduced amount, such as contributing 50 cents for every dollar contributed by the employee,” Stein said. “For example, an employee that will match dollar for dollar for contributions up to 3 percent of pay, and 50 cents after that for contributions up to 6 percent should contribute at least 6 percent to get the full match.”
It’s also important to know what you are spending today verses what sources of income you will have in the future, such as Social Security or a pension, says CBS News business analyst Jill Schlesinger.
"You can put a lot of money away into a 401(k), and I know this is hard for folks, we want you to do it slowly and surely," Schlesinger said.
According to the IRS, workers under 50 can contribute up to $18,000 per year; and workers over 50 can contribute up to an additional $6,000 for a total of $24,000. Contributing to a 401(k) will also deduct from your taxable income, Schlesinger added. And you can also increase your contributions when you get a raise or earn extra income from additional sources. The point is that the earlier that you start saving for your retirement, the more likely that you will be able to enjoy your golden years.