I was going through the Scottrade 6th Annual retirement survey for 2012. Compared to 2011 the trend seemed favorable to what we, the personal finance bloggers, want to see. Americans all across the board started saving more, spending less and the participation in tax deferred accounts increased. Boomers, Gen X are planning actively for their future
Scene is still not bright for Gen Yers, on the other hand still have a lot to catch up. Today’s young adults fall in this category, age 18 -28, to be precise. As per the survey, only 63% of working class gen Y hold tax deferred retirement account (employer’s 401(k) or IRAs). Still there’s a ray of hope:
“The number of Gen Yers planning to seek out information on retirement planning in the next 12 months doubled to 40 percent from 20 percent in 2011“. Says the report.
Looking far ahead is something young people need to do more often, especially when it comes to financial planning and money management. Time is a young adult’s most valuable asset because it allows him to prepare for his retirement. Don’t you want to live comfortably for the rest of your life?
Younger people don’t save a lot
The problem is not everyone, young adults especially, have retirement savings. They either don’t have the ability to save, or just don’t think about it. As per 2011 retirement survey, about 55% of Gen Yers haven’t started putting money for their retirement and that 64% don’t even worry about retirement.
The survey also showed how older people think about saving later in life. Half of the respondents said they should have saved money when they were 25 or younger.
(Related – Can you afford early retirement?)
Reasons younger people can’t build a nest egg
But young people aren’t entirely to blame for the lack of retirement savings. Matt Wallaert, lead scientist for a site focused on helping people get a raise, identified the reason why most Gen Yers haven’t built a nest egg: high-income job and freedom from debt.
He concludes that younger people don’t have access to both. He even points the finger at the economy, and it’s not surprising to see why. Employees in their 20s are the ones mostly laid off. Furthermore, a lot of those who have jobs are employed as a freelancer or contractor status, which means no benefits and job security.
With student loans and other debt, like credit card debt, they need to settle, these people won’t be thinking of putting money into their 401(k).
But there are those who simply don’t like to put money into retirement. And while a huge number (38%) say they’re worried about not having enough money in the future and having to work in retirement, the reality for a lot of these people is they still won’t be able to save even if they want to.
Not intimidated by investment
High living expenses, lack of high-paying jobs, lack of job security and benefits, and debt are obstacles young adults need to overcome. But the potential is great for these people especially now that this generation is not intimidated by investment. Because information is readily accessible and available, Gen Yers believe investing is “fun and enjoyable.”
Smart ways to save for the future
To retire rich, you have to be smart about your money. Here some tips:
Have a 401(k) plan. The earlier you start, the more money you’ll have when you retire. This, eventually, will be free money for you and the more contributions you make, the more cash you’ll end up with. You also have the choice in the amount of contributions. There are many benefits of having a 401(k), so better start early.
If you’re switching jobs, then you’re most probably going to wonder “How do I rollover my 401(k)?” Don’t act in haste because you may end up losing money (and years). It’s best to research and consult with the right people and resources.
Don’t be too quick in paying off your student loans. In this case, it’s all right to wait for the right time. Because interest rates are fixed and lower for loans issued after 2006, you’ll get more value for your money by taking your time.
(Related – How much do you need for retirement?)
Control your finances
Have an emergency fund, it’s most advised personal finance advice! Pay yourself first. Cut back on spending. You have a lot of time so use it to your advantage. Make the right financial choices and you can retire rich.
I came to America in 2005 and started my first retirement account in 2009, at an age of 30+. Still, I am confidant to have saved enough for retirement by the time I turn 55.
So, even if you have not saved enough for your retirement yet, it’s never too late. You are not alone, 61% of Americans surveyed feel that they haven’t saved /or are not saving enough for retirement. Take action today and start investing. You may want to go through my previously posted list of 20 best practices for retirement saving.
Are you saving for retirement and are you satisfied with the rate you are going now?
[email protected] says
I would have to say yes and no in regards to if young people are to blame. The reason I say no is for the reason Wallaert stated above. Young people are just starting out so a lot of their money goes toward school, housing, furniture, etc which lead to debt. Then the next few years they are paying down the debt keeping them from saving. I also think that parents could also be to blame in this regard as well. Did they teach their child financial responsibility? If not, it could cause the young adult to take even longer to pay down their debt delaying them to build that nest egg. The reason I say yes is the fact that even if their parents did not instill them with financial responsibility, there is plenty of material on the internet that they could read on it.
And the good thing is percentage of retirement savers among population steadily growing over the years. I think the picture is going to change specially after the recent recession and the rise of internet as a source of knowledge medium.
I actually think students need to think of paying off their student loans. Despite the student loans having interest, it’s still a loan, and it builds up rapidly over time. If you have a 401(k), invest up the the company match, then use your savings to pay off the loan. Do not go live in a fancy apartment, buy expensive clothes, or buy a brand new expensive car. I have NO sympathy for the people who did this and are complaining about not having enough money.
You are to the point. When they upgrade themselves from a dorm to a apartment with a constant amount of money coming every month, they want to first upgrade their lifestyle, and unknowingly fall in to the debt trap.
I fully second your opinion of investing only up tot he company match in 401 (k) and paying off the student loan debt with rest of the saving.
Luxury home and cars can wait for few more years.
Jenny @ Frugal Guru Guide says
Yep! First consumer debt, then 401(k) to company match, then student loans.
Jenny @ Frugal Guru Guide says
We’re on track, but I’d like to save more.
Good luck for the rest of the journey!
The College Investor says
It’ll take some time for young adults to have retirement savings because of the debts they have to pay after college, but even if they don’t have a lot of debts to pay it will still take some time because of the society that we live in and of course, the economy is not as good as before. In the past, people live very simple lives. These days we are more tempted to buy things we do not really need because we already have the older version. Technology is moving things fast and it’s taking our money with it.
One more point of us buying more things is the internet. Now we no longer have to visit malls to get buying impulse. You can impulse buying from your couch.
Manette @ Barbara Friedberg Personal Finance says
Somehow, young adults should not be blamed because they are at the stage of paying off their college loan and credit cards. On the other hand, they are also spending on gadgets, car, and vacations. Retirement is very far from their mind so saving up for it is not yet on the plan. The sad reality.
Yes, they also save for marriage and home, etc. Whatever money is left is spent to improve life style. I’d like to term this life style inflation as “Ramen noodles to steak upgrade”, if I may.
Bobby @ Ban Excuses says
I find it very sad when people don’t realize they need to save for retirement. The whole argument of “I can’t afford to save for my retirement” is terrible logic. In fact, those are the very people who can’t afford not to save for their retirement.
Yes, very true. But, thankfully the population of such people reduced by 4% in one single year. Let us spread the awareness non-stop and hope someone having this mentality starts saving for retirement.
Tom Gorski says
Kudos for so thoroughly documenting the reasons behind lesser savings among Gen Yers.. hope the tips on smart saving provided by you are availed by sincere Gen Yers!
Yeah I wrote this article with a hope like that only. Thanks for appreciating the effort
Connor Harley says
As early as young adulthood, they should already be planning for the future. It may seem hard since they still have some student loans to pay off, but starting little by little at an early age will surely go a long way.
Shawn James @ PipsToday says
Yes, I am saving for retirement and not satisfied with the rate but I am continue for saving. Actually we have saving two type for retirement first normal retirement saving & second saving type investment in bonds that’s pretty good idea. For second way, we discuss in details then decide we can go with this.