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The Millennial Financial Pinch

Updated: Oct 6, 2019

"An investment in knowledge pays the best interest." - Benjamin Franklin



Millennials, ranging from the years born between 1981 and 1996, are facing a financial crisis left unspoken and unforeseen. Quietly resting on the backburner until the crux hits: Retirement. You can ask any Millennial today what their retirement strategy is and most likely most won’t have one, or for that matter, will have even considered it.

The National Institute on Retirement Security reports that 66% of working millennials have no retirement savings strategies. Unfortunately, this crisis is due to the lack of financial retirement awareness among millennials and also due to their financial irrationality. Millennials naturally have less responsibilities financially, however, manage to find a way to spend all of their money causing them to live from paycheck to paycheck with nothing or little set aside. Between the ages of 18 and 24, over 45% don't have an emergency fund set aside. Those in the age group of 25 through 34 weren’t substantially different; with over 41% of those surveyed not having an emergency fund.





The Nitty-Gritty


On average, millennials are lacking in terms of retirement and investment strategies. Of the millennials that are participating in investment vehicles, generally, most of them are leaning toward cash account investments. Some surveys show that the cash account investments on average were earning less than a 1.5% return of holdings. For a 25-year-old investing 5K yearly into their retirement via cash accounts, at the 1.5% return of holdings, at age 65 they will have a retirement fund of $275,409.56. In comparison, someone at the age of 25 investing in ETFs, mutual funds, or other retirement vehicles with an average 7.5% return compounded, would yield $1.22M. Showing that the cash accounts are coming up short handed for retirement purposes as opposed to other investment vehicles.


An interesting study also showed that even when millennials have the opportunity available, they are still steering away from retirement-based strategies. Two-thirds of the working millennial population have been shown to have access to employer retirement contribution programs, with only 33% of them actually participating. Nearly 40% of those who didn’t participate in those plans found the eligibility requirements set forth to be too difficult to meet, rendering millennial’s long-term investment strategies. The Federal Reserve has even reported a decline in time-based strategies for millennials. One report showed that home-ownership for instance has dropped nearly 39% in the age group of 24-32 whereas the baby-boomers reported the average age to own a home at 25..






Conclusion


The bottom line is that millennials are suffering right now in the terms of retirement strategies. Even the ones with an investment strategy are still experiencing hardship and the short handedness of using cash accounts. Putting off retirement strategies or leaving them unvoiced can contribute to a world of misfortune in later years, especially the ones we want to enjoy. And please don’t depend on Social Security having your back. There is a world of misinformation surrounding social security benefits and how its program will meet the requirements for retired beneficiaries which we can get into in a different article later. However, just for a quick glance, social security on average in 2019 only paid its beneficiaries $1,461 a month, resulting in $17,532 a year. These numbers only represent about 40% of the national average income.


Our team here recommends that "sooner" is far, far better than "later" in setting investment strategies. If you have any comments or question about this topic feel free to leave them in the comments section. We will be happy to answer them!


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© 2019 by Jacob C Reeves, The Broke Broker.