Baby Boomers are entering the prime years of their retirements, many of which will be funded by pensions, social security, and personal investments. Millennials are left to wonder if they will be able to retire under the same terms that their grandparents did. There are many factors that could affect personal retirement decisions, as well as general regulations and laws affecting retirement. Consumers’ Research has compiled a list of important things for young people to consider when thinking about retirement:
The future of Social Security is at risk.
At its current payout rate, Social Security is unsustainable. Given the massive number of retired and soon-to-retire people expecting benefits, Social Security’s trust fund will be gone by 2034. Social Security may not exist in 30 or 40 years, so it would be unwise for Millennials to factor in these benefits when planning for retirement.
These aren’t your grandfather’s investment returns.
Despite financial crises in 2000 and 2008, the past 30 years have been called a “Golden Age” of investment returns by McKinsey. The consulting firm’s study projects that equity returns will be two to four percent lower than the 30-year average, marked at eight percent. What does this mean for Millennials? They will have to save more in order to achieve their desired retirement income level. Investment returns are very hard to predict, but young people shouldn’t expect them to beat that of the current generation of retired people.
It is important to know how much you will need when you retire.
Knowing how much you will need to spend 20, 30, or 40 years down the road is difficult. One effective strategy is to determine what percentage of your current income you think you will need. Vanguard offers a retirement income calculator that takes information like your current age, income, expected investment returns (see above), and the annual amount you want to contribute to a retirement savings account. Tools like this can give you a better idea of what you can expect to have when you retire, and what you’ll need.
Retirement may not look the same.
According to U.S. News & World Report, “Phased Retirement” is the next big trend that consumers should focus on. This type of retirement allows employees to phase into a part-time role that carries less responsibility, but still provides some income. This benefits the retiree with a more manageable workload and a continued stream of income, and it reduces costs for employers. People planning on retiring in the near term should consider this, and other retirement alternatives, to alleviate the financial burden of leaving a job. Young people should take into account that this could be much more widespread by the time they are thinking about retirement; also, there may be other completely different retirement options in 30 or 40 years.
Look for new ways to save.
There are hundreds of apps for your smartphone that make saving effortless and mindless. Acorn is an app that rounds up your credit or debit card transactions to the nearest dollar and invests that money in your personal account. Strategies like this eliminate the concern that many Millennials might have: am I too young to start investing? The conditions mentioned above suggest that saving early is extremely important. If one of these strategies works for you then your wallet and your retirement account will likely thank you later.
Read more from CNN Money.
Read more from U.S. News & World Report.
Read more from McKinsey.