Retirement

Millennials and Retirement

“Millennials”, another term adopted to try and define an entire generation. Like those before them, Millennials have grown up differently from their predecessors and face the world with a fresh perspective. Yet one thing that hasn’t changed is the importance of saving for one’s sunset years — after all, we all want to retire blissfully, right?

First things first: when I talk about “Millennials”, I’m personally focusing on those aged around 22 – 37 years old, or those born between 1981 and 1996. In comparison to Baby Boomers and Gen X before them, life is understandably a tad different. Among housing costs rising, amassing student debt and wage inflation, planning for retirement has been not been at the forefront of their savings. I myself am what you would call a “Millennial”; I’ll admit that the pressure to save more for a future beyond my comprehension seemed a completely foreign concept, until recently. It seems, however, that I am not alone.

For example, in the US, 66% of people ages 21 – 32 have nothing saved for retirement, instead favouring paying off student debt or buying a home, a similar mindset held by the younger generation in the UK. In Britain, a huge inequality gap between younger and older workers exists, thanks to the stripping of pension money and the shift from “defined benefit” to “defined contribution” plans. In 2015, it works out that defined benefit workers received £7389 from their companies, against £1701 for defined contribution workers. Ouch. We can thank 1980s Britain for this one.

In a climate where the Internet generation won’t be able to retire like their grandparents, relying on personal savings is at a big-time high. It is likely we will be retiring later and even continuing some form of work in our older age, rather than quit entirely. That, mixed with a chance that state benefits may not be fully funded and not pay out what is expected, pushes back the realistic age of retirement.

Now, I could carry on with stats and figures about how things are different, but that’s not really going to get us anywhere. So, what to do in this day and age? Here are some thoughts to help you ensure your savings will give you the lifestyle you deserve in retirement.

Do It Yourself

A handy discipline to adopt when it comes to your retirement is to assume you must make your pension provisions on your own and work out a savings and investment plan from scratch. Yes, there are state pensions, but realistically the payout won’t be enough to fund the lifestyle you have been working for. Needless to say, it is certainly still worth contributing to; you should view it as a “bonus” around your own pension provisions. UK Expats, be sure to check out about paying National Insurance Contributions from abroad here — don’t miss out if you can.

That said, how much do you need for retirement? Naturally, this depends on the kind of lifestyle you want to be living when you hang up the gloves. A traditional figure suggests $1 million for retirement, yet really that won’t get you far nowadays, nor in the future. Another recommendation is 10 times your final salary in savings or a 4 % rule — check out the various methods to fund the worry-free retirement here.

My thoughts? To get going, aim to save 15% of your annual income each year. Get in the habit of regularly saving each month; set your savings up automatically so you don’t even have to think about it. Even if it is less than 15 %, at least get started if you haven’t already and reassess at different stages of your life.

Manage Your Debts

I’m sure I don’t need to tell you about the importance of managing debt and addressing this first. Notably, Credit card debt is rife and should be considered carefully; a large chunk of Millennials are adorned with the debt from our student loans, much more than previous generations, and are spending years paying this back for our Higher Education.

But here’s an interesting consideration: if you received your loan from Student Finance UK, what if I told you that it may be best not to prioritise paying this back first?

Yes, you heard me right — instead, focus on amassing your wealth and then letting this grow itself, building up your overall wealth. Your UK student loan is one of the cheapest loans you could have; focus on keeping on top of the interest as a start and slowly pay it off, not with large lumps of money. See how this makes sense in a great article from MoneySavingExpert.

Pay what you need to keep ’em happy and cover the interest — simple!

Got it? Good, which leads us on to…

Investments

Fun yet frugal — I try and live by that. As for my financial goals, there’s a reason I love that motto.

Now, I am a firm believer of work/life balance and how important it is to our general state of being, but I also want to be able to stop working one day and have a fulfilling retirement before climbing the stairway to heaven. To achieve this, my actions now will greatly influence just how “awesome” my retirement can be.

Any form of saving is a great discipline, but you should make sure that these savings are actually growing and not just simply lying in a bank account.

Why?

Well, for one, banks aren’t completely safe…we need only look back to 2008.

But generally, the public puts a lot of trust in banks, though they can (and famously) go bust. As a matter of fact, do you know how much of your hard-earned cash in your UK account is safe? No, not all of it — £85,000. If a bank fails, you’ll get that much guaranteed. Anything over, gone. Eek

For comparison, in Australia and the US, the guarantee is $250,000. However, it is wise to remember that the government could take away this guarantee…

After all, no financial investment can offer complete certainty.

Simply amassing all your wealth in one bank account can be risky. Read more into this here it’s worth your while!

Secondly, it’s important to understand the effects of inflation and the real value of your savings. Simply put, if your savings account pays about 2% interest, yet inflation is at 2.7% — what is the real value of your savings? Whilst your funds have grown, so has the general cost of living: you’re actually losing out.

…but that doesn’t mean keep it under your mattress!

So, what’s best to do?

Spread your investments — don’t keep your eggs in one basket.

When you invest, invest smartly. You need to beat inflation for your savings to have their worth. If you’re unsure, seek the advice of an expert as your financial plan should be tailored towards your needs — where and when you are in your life needs to meet different goals. Aspects such as living abroad can open up great opportunities to invest offshore, too.

To start, be sure you’ve got your emergency fund in check and that your short-term needs are accounted for. Any excess money can then be allocated to a long-term plan to help build up your retirement pot. Again, it is best to start early and let the wonders of compound interest work in your favour.


For any questions or advice, why not send me a message?

And if you’re living abroad, why not hear more about the returns you can get with offshore savings?

Contact me at thomas@absolutefsl.com to learn more.


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