Most Millennials are not on track when it comes to saving for retirement
money.cnn.com
money.cnn.com
It is amazing that the median is under $20k and the average is nearly $70k. This means there are some folks with very large retirement savings that are pulling the average up a lot. Considering this only includes folks up to age 32, this is really surprising. How much do these savers have socked away?
Even when I worked in a big law firm, I didn't put that much in my retirement account because I was mostly saving to be able to buy a house (in the Bay Area). I can't imagine who these millennials are that have so much in a retirement account — presumably they also live in expensive areas if they are able to earn so much?
Edit: Glad to see all the responses, including from folks who have healthy retirement accounts. It would be great if you could share where you live and whether you have bought or are planning to buy a home.
Keep in mind ridiculous house prices are only in a handful of cities. The rest of the country exists and is doing just fine, thank you very much.
I live in Houston and made $75k right out of school as an IT consultant. I lived in the cheapest apartment I could find in my favorite Houston neighborhood -- a place with a lot of art and nightlife. Despite it being a happening place, it only cost $700/mo in 2012.
I was a big fan of the finance blogger Mr. Money Mustache and lived cheaply, on about $30k/yr. The rest of my salary went towards paying off my relatively low school debt, then I funneled it all to my Roth IRA, 401(k), and ESPP. After maxing that out, I bought taxable investments too.
My goal was to retire in my mid-30s after making an average developer salary. From 2012-2015, my net worth went from -$30k to $150k. It's still rising, but not as quickly because my fiance doesn't have the same crazy ideas about money that I do.
I bought a 3-bedroom townhouse in a nice neighborhood right near downtown. I can easily afford it and I'm not even making 6 figures yet.
After the divorce, I have about $20K left after having to split it with my ex-wife, who had saved a grand total of $2.00 during our marriage.
I don't really have a point, except that some people are very good at saving, even from a young age, and some people will never save a penny. The key is starting young. As soon as you are able to contribute anything, even 1%, you get the advantage of compounding interest over time, which is the key.
Wow, that is brutal. I'm guessing common law state? Even then, shouldn't you have 50%? Was it attorney expenses?
Yes, I kept the house, which was my separate property with a community property interest, since it was purchased in my name only before we were married. I cannot afford the house, so I am trying to play the foreclosure avoidance game and give my kids a nice place to live that provides them with some continuity.
I also had $1700 in child support (this is two kids, with a 60/40 custody share) that I offered to give her more money in the settlement if she would agree to $1400 instead. She agreed to that, and then before that judgment had even been processed, had me back in court to get $1700 per month, which she did, since the court will use whatever Disso-Master spits out. She owns her own business, and of course her personal and business accounts are mingled, so there is no way to pinpoint what she actually makes, but it was at least $3,500 per month part time when we were married.
But none of that matters if you earned a lot more than your spouse. Divorce is no joke, especially if you are the high earner in the relationship. A lot of people are under the assumption that if you split custody, you don't pay support or the support is a nominal amount. This is absolutely not the case. The court (in CA, at least) looks to maintain the children's standard of living DURING THE MARRIAGE until the child is 18 or emancipated. This is the case even if your divorce left you in very different circumstances.
That's just child support, which is only one of the many costs associated with divorce.
(I want to make it clear that I have no problem with paying _reasonable_ child support, but I'm sorry, the current child support calculations can leave you with an egregious amount of support payments)
Why? Standard of livings can be preposterous and dependent on previous economic status (which might not be the same post divorce -- and in many cases it isn't).
The court doesn't care for the millions of kids who fall on standard of living without a divorce (or even while having been had out of wedlock), or who start and end on a low standard of living to begin with. Why should it care for the "same standard of living" in the case of divorce?
A decent standard of living (housing, food, etc) yes. But "maintain" the pre-divorce standard of living is BS.
"Should the guy have to pay that much as a result of a casual encounter? Wagner says emphatically yes: "The child had nothing to say about being born or the wisdom of a one-night stand. That child should be supported exactly as if those parties had married and stayed married forever." Is he worried about an incentive structure where a one-night stand is more lucrative than going to college and working? "A judge would slap you silly if you pointed out that a plaintiff would be earning more from child support than from attending college and working," Wagner says. "Put yourself in the diaper of the child. Public policy says that he or she has a human right to be raised in the lifestyle of the two parents. If you don't like that philosophy get the hell out of California." Wagner explains that the current law came about because "California was ranked 45th in nation in late 1980s in the amount of child support obtainable. The legislature was astounded and created the current system. It is public policy that California will always be ranked among the top 5 states [in potential profits from child support]."
They might "slap you silly", but they would still be wrong. And not everybody "attends college" or works cushy enough jobs...
If you have RSUs, you get to go through the fun process of either giving some value to these RSUs and paying off the other party's community interest in that valuation, or you can try to argue that RSUs have a zero dollars value until granted. Good luck with RSUs and stock options either way, as it can become a complicated mess of laws and formulas.
You can try to do the same thing with stocks, where you pay when you vest or sell, or sell on behalf of the other party, but in my case, and I suspect many others, I wanted the cleanest break possible and I settled on a payout amount simply to reduce the amount of communication with my ex-wife that would be necessary to pull this off.
Edit: I'll give you a concrete example - let's say my ex-wife decides to marry the systems engineer she is dating, who is also a high-earner. In that case, she can sue for more child support because it will move her up a tax bracket.
This is just incredible. What a naive legal system!
Also, in my state you don't split assets people had before going into the marriage. Maybe that's just here though.
I guess the point I am trying to make is that I don't know if everyone realizes that if you are the only one in the household saving away for the future, that those savings are not "yours" if the marriage ends, even if your ex-spouse was absolutely frivolous with money, they will get half of anything you saved, and speaking from experience, that feeling absolutely sucks and was one that I am still trying to recover from years later.
She also makes far less than me because she wants to work in a field where she makes a difference. She could make twice as much, but she chooses not to. We're not going to have kids, and we split chores equally.
It seems messed up that the relationship is going to put me in worse state financially by subsidizing my partner, and on top of that the laws are structured to give her more money (even though she's fully capable of making more herself).
I love her a great deal and our relationship is otherwise healthy, but I'm scared for a hypothetical situation where things go south. Expect the best, prepare for the worst, right?
I feel like the incompatibility we had in regards to savings, financial discipline, etc., should have been a much bigger red flag to me. If you are having these sorts of doubts, I would think long and hard before making the commitment that goes along with marriage. If you do get married, and it doesn't work out, just make sure you divorce before the 10 year mark, or you will have no set end to spousal support. If you divorce before 10 years, you will normally pay spousal support for half the length of the marriage (about 4 years in my case). If you have kids, all bets are off and you will likely be on the hook for spousal, child support,(plus half of medical expenses, extra-curricular activities, and child care costs while your ex-spouse works - this is on top of monthly child support), you will be required to maintain health insurance for the children, you may get your wages garnished, you may get Smith-Ostler riders for 12% of any bonus or unexpected income towards more child support, legal fees, therapist fees (very easy to have a therapy order in place for children and/or the parent(s)), etc.
That said, anything you have saved before marriage is yours to keep if you divorce, so there's that aspect to keep in mind.
I did the homemaker thing. The ex was career military, we had special needs kids and I had serious health problems. It was the right thing to do, but I am still trying to get on my feet financially post divorce.
We had a 1950s style marriage where he was the breadwinner. I come from a much more financially savvy and financially conservative family than he did. His idea of what to do with a pay raise: Finance more debt!
I found it completely crazy making.
I never want to be financially dependent on a man again. At some point, I decided the best thing I could do to make a damn difference in the world would be to leave behind my Pink Collar Ghetto aspirations and do any damn thing I want with my life instead of continuing to care about the world while the world doesn't give a flying fuck about me and my bills.
I sometimes wish I could talk some sense into other women. If you need to express some need to care, get a pet.
(No offense intended. I am trying to be sympathetic.)
If I may ask, were attorneys involved on either side in your case? I suspect that is the main differentiator between my experience and others that I have talked with that were able to settle on a sane number with their ex.
My ex-wife and I did the homemaker thing too. A lot of my peer group did. I don't think it works these days. No offense intended, but just like you never hope to be financially dependent on a man, I hope to never have a woman that is financially dependent on me again.
No, we had a DIY divorce.
I'm actually a rather skilled negotiator in some sense, though I don't usually say so because I think that gives people a completely different idea than what I really mean. I mean more like diplomat or like the guy in the movie The Negotiator. [1]
We kept lawyers out of it and that meant there was more pie to go around because we weren't giving tens of thousands of dollars to lawyers. That made it easier for both of us to give a little here and there.
My divorce was surprisingly amicable, more so than my marriage. We agreed ahead of time that we were not going to leave either party in a shithole of financial mess. (I sometimes joke that if we hated each other and wanted to make each other miserable, we could have just stayed together. :-P)
I have been to his house once post divorce and met his new wife. His life seems to be pretty okay these days.
Your story sounds like most I have heard where no lawyers got involved. Hell hath no fury like a partner scorned (with a retainer).
Glad to hear that you made it out without exercising Mutually Assured Destruction. :)
Related reading: http://realworlddivorce.com
Edit: To be clear, I mean that I suspect that there are a number of high-earning individuals on this forum that have assets like property, retirement accounts, stock options, RSUs, bonuses, etc., and that many in my situation would be paying similar amounts.
Keep in mind that I am talking about divorces involving lawyers on each side. I have no doubt that others make out much better if they have a sane ex-spouse that just wants to move on with their life.
The thing about divorce that I didn't realize is that making the decision to get divorced in the first place is the easiest and least painful of many choices you will need to make as a result.
Me and my long time girl friend have been really fortunate, no student loans and high paying jobs for the first 5 years out college. Our retirement portfolios are in a pretty good place right now.
Seems that at all levels of American society inequality is rampant.
I'm a young millenial in a low cost city in Texas with a retirement account balance over the average by quite a bit. If you have the money to max your accounts every year, its very easy. And I've already bought and sold a house while I maxed out my accounts.
Hearing the stories here makes me want to leave!
The biggest recommendations I can give for trying to save more money:
Make yourself work a bit – sock away more than what you would deem “comfortable” and live off the rest. You’ll be forced to really think about what’s worth spending on.
Get a roommate. I save probably $3,000 a year from this alone, and a big plus is that I get along just fine with him.
Spend frivolously on things that really let you have fun or relax – to a point. I like Mexican food, a good gym membership, and quality groceries. I don’t worry about what I spent on these items because I spend next-to-nothing elsewhere.
Start young. I opened my Roth when I was 17 and have maxed it out each year, in addition to maxing our my work retirement accounts the last few years.
A 32 year old has been working for about 10 years. S&P500 has been growing at 10.5% with dividends reinvested for the last 10 years. That means about $3500/yr in 401k contributions would get you to the average account balance. Take into account employer matches and that's honestly not as much as you expect it to be. Traditional wisdom is to put away 10% and employers have started to implement the auto-incrementing auto-enrollment features into their 401k plans that Richard Thaler has been promoting for the last several years.
We're actually gen x and have other retirement assets I'm ignoring here. But, this account illustrates real world performance that any number of tech workers could have reproduced in the same short time period. Not only that, but many are at an age where they could have been making contributions for 10-15 years now, rather than just 3-4...
Edit: apparently based of census data from 2014, so yeah he could be in there!
Pensions should be tax-exempt at withdrawal, or else be accessible. Otherwise what's the incentive, other than when pre-tax contributions are possible?
The pension tax deduction is also pretty poor and for every pound you earn above 100K you are losing your allowance which also infuriates me.
1:1 matching is almost unheard of now but was normal twenty years ago.
Contemporary jobs provide for "unlimited" (translation: uncompensated) vacation time...no 401k matching...sometimes even a huge copay for health insurance.
I am 30 and I have about $140k in 401k.
EDIT: Why the downvotes? I'm just affirming with a datapoint. There is an extreme inequality in America and I'm willingly acknowledging that.
My favorites are: https://money.cnn.com/2014/05/02/retirement/retirement-mille... https://money.cnn.com/2015/05/06/retirement/retirement-savin...
written almost exactly a year apart and contradicting the other articles
If that's the actual reason why retirement savings are low, then this sounds more like a paper crisis than a real one. If you're putting $30k a year towards paying down student loans or home equity, then – assuming nothing changes – eventually you're going to "fill" those buckets and start saving $30k a year for retirement, which over the course of a normal career should be plenty to retire.
That said, I have my doubts that millenials' low retirement savings as a group is really because they're saving in another bucket.
I bought a house 10 years later and have generally done a decent job of saving money but, depending upon your priorities, education choices, etc., I'm not sure that not having saved money for retirement in your 20s (except perhaps to the degree that you're forsaking 401k matching, etc.) is automatically a sign of poor money management.
I'll probably never own a home.
My future is pretty bleak, but I feel like that's the general millennial view.
I haven't seen anything get better economically since I was born. I watched my grandparents lose their home & lose all economic security because their pensions and union payouts were crushed, their social security hasn't seen any reasonable increase in a long time.
I just see things going downhill and never getting better because that's all I've ever experienced.
That's vague and doesn't have any specifics so can't really comment on that.
> I haven't seen anything get better economically since I was born. I watched my grandparents lose their home & lose all economic security because their pensions and union payouts were crushed, their social security hasn't seen any reasonable increase in a long time.
So your grandparents had it tough in their retirement years so you and everyone else has to have it tough economically?
> I just see things going downhill and never getting better because that's all I've ever experienced.
So your 27, still early in your adult life and you have given up completely? Sounds like your setting your self up for a tough life. Do you not have plans? A career you want to excel in? Goals? Besides, being a union member or having a pension is not needed to retire comfortably. The S&P 500 index is up over 1000% since you were born if you were to reinvest the dividends. Prudent saving and investing will give you a comfortable retirement. Plus your young enough that even if you started now you could retire well off.
S&P doesn't really help me since I've always been low income.
My grandparents are an example, but with 80% of the country living paycheck to paycheck, 50% deemed poor or in poverty, 1/5 children in poverty, 60% of the country hasn't seen a pay raise since the 70's when adjusted for inflation, and workers rights being crushed daily, it's not just my grandparents, the majority of the country is feeling it. There's a reason most Millennials are "not on track", and it's because they have no money.
What do I have to look forward to? I don't have money to invest in my future, and I'm a very frugal person. Cutting 2-5% to put into some sort of savings would crush me monthly. I feel like this is how most Millennials feel too.
Social security and Medicare will be gutted by the time our generation reaches what was once considered retirement age. There’s no longer such a thing as a pension unless you belong to a public sector union. Agism makes me concerned about being able to stay employed past the next 10 years.
And that’s all still assuming that automation-related unemployment and growing inequality don’t result in extremely destructive social unrest that tears the economy to pieces. (Or that it doesn’t collapse in on itself due to inequality leaving the masses without the disposable income needed to sustain a consumption-based economy.)
I do not own a home, but expect to convert most of that liquid savings if the opportunity does arise.
I do not make enough to qualify for owing a home in the area I live.
I also don't anticipate growth in the markets long term over the period of my life to retirement; I fully expect the unfinished recession will need to show a bug ugly period again with an ACTUAL market correction and I foolishly hope we'll finally stop chasing bubbles after that because it will be politically untenable to not FULLY socialize retirement and (at least basic) health-care costs.
Just out of curiosity, what's the difference between money in the bank and money for retirement? Should the retirement money go into a dedicated (investment? pension?) fund? Can't they be your savings that you manage by yourself?
I'm asking since I was raised with a different background with pension in Europe being a very different concept from the US.
Yeah this is just some silliness and I don't understand why there are so many different types of vehicles.
It seems like there should be a given list of things that are OK for any tax exempt or deferred use, and I don't see why artificially limiting the case of that use is a good thing for society.
The exception should be based around one of two concepts. Either "investing" pre-tax, and being taxed when pulling from the pool, or post-tax and being allowed to spend for allowed uses without any tax. Any profits should be forced to go back in to the same type of pool. Given the fact that taxes are assessed at some point, transferring (at current taxes) from the not-yet-taxed pool type to the already-taxed type should be allowed.
Investment/retirement implies long time, you can afford to take a large risk because the reward is worth it long term. Stocks historically average 10% any 20 year time, but in that 20 years there are some years where they drop 20%. It works out in the long run, but you better not have near term savings in there because you can't know for sure that your money will be there.
If i remember correctly you had 6 months before the crash.
I quickly looked at the oil chart and looks like oil was still above $100 when lehman failed. It dropped way down to like 20's.
I'm not confident that I'll receive social security. Huge health expenses may come up.
How do others feel? You're not all billionaire unicorns on this site, are you?
This is a common sentiment, but it's a strange one to me. I think it's extremely unlikely that a program as popular as Social Security is going to just disappear. Entitlements have alligator blood. They're going to be really hard to get rid of.
And, anyway, it's pretty foolish to think you can predict what's going to happen in politics 30 years from now. 30 years ago the Soviet Union still existed and nobody had heard of the Internet. And people want to tell me they know what's going to happen with Social Security?
What the something is I don't know. There are lots of options. It is entirely possible that the younger generation realizing that the money isn't there will decide to scrap it. It is possible that taxes will be raised to pay it off. Maybe the government will borrow money to pay for it. Maybe benefits will be cut (this is already happening via inflation, but the effect is small). Maybe the retirement age will be raised. I don't know what will be done, but something will have to happen.
As you said, anything can happen in 30 years.
No, they are telling the exact opposite, that they do not know what is going to happen to social security. So they are not confidant that they will receive it because they do not know what will happen to it.
The consequences are serious and the time it takes to determine whether it's worth worrying about is in decades. It's like global warming. If you wait to find out what happens, it's too late.
In South Korea, suicide rates are high because there is no social safety net. Old people just kill themselves. If SS gets made effectively defunct, what recourse will 2/3 of the aging population with no retirement have?
I'd like to turn this on its head: why are you particularly worried about Social Security? Any government program could disappear in the next 30 years. So why is your focus on Social Security? Why is this subthread so predictable?
It's because of a deliberate, targeted, FUD-campaign against Social Security by people who are ideologically opposed to it. Their fears are not genuine. They oppose the program in principle and benefit by sowing doubt. That's why you're making this comment in this thread and not in some other thread about some other government program.
> It's like global warming. If you wait to find out what happens, it's too late.
I don't think it's generally useful to pick holes in analogies, but this one is too big to ignore. Social Security is a man-made program. If we want to change it, we can just change it. At any time. For any reason. I'm not sure it could actually be any less like climate.
because the 1 of the 2 political parties in the USA, the one currently holding all three branches of the federal government, has been quite publicly trying to cut it for decades. Even if they don't get it accomplished today they have another 40-50 years worth of trying before "millennials" hit retirement age.
1. One party wants to cut Social Security. This is obviously true.
2. That same party wants to convince you that it has to be cut or otherwise changed in significant ways or it will fail entirely -- which brings us back to #1.
In other words, #1 is driving #2, not the other way around. If you're worried about #1, then I'm with you. You should be. But this is generally presented as a worry about #2, which is really just a cynical ploy to get back to #1.
They want to cut Social Security for ideological reasons. But their plan is to convince you that it needs to be done for practical reasons. It's a pretty good plan that seems to be working quite well, because a whole bunch of regular folks who don't know what the word "insolvent" means are sure it applies to Social Security.
The real question is: will I be able to retire on what little SS will provide, and the answer is likely no, given how little it is nominally, plus inflation.
SS is a safety-net pension, not intended to be a good retirement on its own, only to mitigate (not even eliminate) poverty should other retirement arrangements fail.
So, yeah, unless your standards are really low, you don't be able to retire on it alone. But that's pretty much by design. It wasn't designed to replace employer pensions.
Even if it happens to be true (and, again, it's not clearly true), it's not a very interesting discussion (outside of a history course) and certainly not one that helps us navigate the best path forward at the present time. Your own references to employer pensions demonstrate how totally irrelevant the original intentions now are, since such pensions have waned in influence significantly in the intervening years.
I've never seen it; it's pretty clear that minimum wage isn't a fallback in case of private arrangement failure (that's welfare, not minimum wage.)
> We can make these programs whatever we want them to be.
Sure, we could make a general universal first-resort pension. SS has never be designed to be or marketed as that, so you shouldn't expect it to be. (That's orthogonal to whether you should reform it to be one, or replace it with one; a portable, universal, public, actuarially sound defined benefit pensions is, IMO, a great idea.)
> I'm not sure why I'm supposed to care very much about the intentions of the people who happened to write the original law.
I don't particularly care what you care about. The discussion was over various perspectives of the decline of social security, starting with whether it would fail to be there—it was then suggested that it would for political reasons, but the real question was whether it would be an adequate retirement. I was pointing out that the fact that it was perceived as unlikely to be should be unsurprising and not a sign of decline, since it never had been in the past and was never deisgned to serve that purpose.
Re: the form of the argument as it applies to minimum wage, it works like this:
Argument: "Minimum wage isn't enough for a family to live on!"
Response: "It was never intended to be enough to live on. It's for teenagers, etc, etc."
Note that this path leads us away from all the interesting questions about the minimum wage and into an argument about what lived in the hearts of the people who wrote the original law. That's the inevitable result of this kind of argument and the thing I'm objecting to.
https://dqydj.com/income-percentile-by-age-calculator/
It’s about $45K for a 35 year old.
Heh. I don't have anything now either, but to be fair, I'm now a seasonally working spouse in a different country than I lived then :D I'm not so worried about it. Even if I'm poor, I'll be OK.
https://www.cultofmac.com/284247/rare-original-4gb-iphone-la...
32, living in down south in New Zealand. Working for clients around the world, mostly in the UK.
Making $150-180K per year.
Bank accounts $15K in NZ ~$50K in the UK account from client payments over the last few months
Own the house we built for $580K in 2016, it has recently been valued at $650K. Have a mortgage on that of $320K.
Have another mortgage of $180K on a $260K house split with a friend when we brought a rental property at the start of this year.
Have about $10K worth of crypto, down from dizzying heights at the start of the year :D, from a $4k gamble just over a year ago.
I think we have ~$20K in a superannuation accounts, which we haven't put anything into since I've been working for myself.
Interest rates on the mortgages are 4.19% p.a.
Other than the mortgages we have no other debts. We being my partner and I, our 1 year old, a dog and 2 cats.
On one hand I feel like we're doing OK. But for the amount I'm making I feel like we should be saving / investing more.
1. A higher percentage of the population back then were working towards a pension and didn’t necessarily have to save.
2. The long-term health of social security wasn’t as much in question back then. Contrast that to today’s conventional wisdom of “plan like your SS payout will be $0.”
And there are probably several other factors that suggest millenials should be more eager to save than their parents—rising costs of college for children, rising costs of end of life care, ever-increasing lifespans suggesting longer retirements, etc.
In all fairness, people have been saying that for decades.
You're right though that a lot more people used to have defined-benefit pensions. I'll even have a modest one from a long gone tech employer. Certainly don't see that much these days.
I would have fallen into that bucket when I was that age. Hey, I wasn't always a highly-paid software tech. I expect to retire comfortably with a couple million, and I didn't hit the startup lottery. (One or two that paid off very modest five figures, and late-90s MSFT options.) After a point, it's time to start putting some money away, and after 35 you can pull it off if you're aggressive. We haven't always maxed our 401Ks out, and missed other opportunities, and we'll still come out okay.
But that's for you tech bros and sis's making bank. I don't know what Mr. and Ms. Median-US-Wage are supposed to do.
https://www.fool.com/retirement/2018/01/29/guess-how-many-ge...
Any plan that has death as a pre-requisite to be successful is not a very good plan in my book.
Acquiring income producing assets seems like a much better plan.
Income producing assets produce income while you still own them without you having to sell them.
Dividend paying stocks would be an exception.
Not suggesting putting all your eggs into a single owned company. That's a separate issue.
What are good resources to learn more about saving for retirement? IRAs, 401Ks, etc.
From the sale of my company.