The Clock is Ticking
Without plowing full steam into a rebuttal of all of the stereotypes about millennials (myself among them), I feel the need to talk a bit about the idea that this generation is still filled with the young. We're getting old! The leading edge of millennials are well into their 30s. It's time for millennials to get a started on saving for retirement. The clock is ticking.
Fewer Millennials Saving for Retirement
A 2015 TD Bank survey observed that among Canadians under the age of 34, only 52% are making contributions to retirement savings. Visual Capitalist recently published an infographic detailing that the majority of US millennials have less than $1,000 in savings.
The cause of this slow start on savings isn't a mystery. Many millennials struggle finding meaningful employment. Some also battle huge student loans and trying to stay on top of rising costs of living. At the same time, though, the years until retirement are always shrinking. And while we may be able to work longer than previous generations, we may not get to choose how long we work. While considering the expectation of future income, we need to understand that something may come up that means our body and our health are unable to support us as long as expected.
Given that millennials have time until retirement, they have an opportunity to make their savings work as hard as possible. Because of our relative youth, millennials have the chance to get started saving early and end up further ahead than if we delay getting started saving. This can hold true even if the initial dollar amounts are small. Compound growth (or growth on top of your investment earnings) can mean that if you get started early, the amount of savings you need to set aside can be lower since they have more opportunity to grow.
The Power of Starting Early
Below I've graphed three different savers all aiming for a retirement at age 65.
- one starts at age 25 saving $2,400 a year or $200 a month
- one starts at age 35 saving $4,500 a year or $375 a month
- one starts at age 45 saving $10,000 a year or approximately $833 a month
For simplicity's sake, all earn 6% on their investments and leave the contribution levels the same for the duration.
All three end up with a little more than $350,000 saved, but the key difference is in how much each has to contribute to reach those amounts.
The saver who started at age 25 chips in less than half of the amount contributed by the late-start saver. You could amplify the advantage of this early start by increasing your savings amounts as you move up in your career and start earning more.
Does $200 a month sound too big a number to start with? Start with something manageable. You'll still benefit from the compounding effect and you'll start building some good habits.
So the story here is get started early: it should feel easier in the long run!