Retirement may feel like a lifetime away for most millennials, however, pensions are becoming of increasing concern for those within this age group.
This is the generation that was affected by the financial crisis and great recession of 2008 and is now navigating the economic impact of a post-pandemic world.However, one positive movement to come out of the pandemic is the increasing importance of a work/life balance.
This is something that we are witnessing ourselves with many of our clients now beginning to offer more hybrid vacancies than pre-Covid-19. This move towards more home-based work not only offers a better working life for many millennials but also positively impacts their financial situation as they pay less on commute costs and can potentially work for a wider variety of businesses, with location no longer being a barrier.
The combination of these factors, coupled with rising costs is unsurprisingly making millennials place more importance on saving for the future.
A 2020 study by Northwestern Mutual indicated that, in general, millennials were expecting to retire at age 61. However, millennials also appear to be the generation that is the most concerned about retirement, with 72% indicating that they are concerned about whether they will be in a position to enjoy a financially secure retirement.
For the avoidance of doubt, if you were born between 1981 and 1996, you are a millennial. Today, you are somewhere between the ages of 27 and 42 and likely to work for at least 20 more years. We decided to break down some of the biggest factors that will contribute to saving for your pension.
Jump to: How much do you need to save for retirement? | The current state of Social Security | Increasing life expectancy | Rising costs of healthcare | Workplace benefits
How much do you need to save for retirement?
This depends on a range of factors, including existing savings, health, family, and your desired lifestyle. We have outlined three of the most popular general saving guides by Investopedia designed to help you get the most out of your pension.
- 15-25% rule: depending on your circumstances, you should save between 15% and 25% of your salary each year, starting in your twenties. For millennials in their thirties, this means you should have already saved one-to-two times your annual salary
- The 80% rule: states you should be able to live on 80% of your income, so if you earn $150k, you should be aiming to live on $120k post-retirement each year. This strategy is most effective if earning over $50k a year
- 4% rule: designed to last for thirty years, this rule is the maximum percentage you can withdraw from your pension savings each year once you’ve retired.
Whilst these figures may seem daunting for some, it’s important to remember that they will likely include employer contributions such as a 401(k) or IRA.
These guides don’t take into account personal assets and also assume that your annual salary will increase with age, hopefully making your total savings goal feel more achievable.
The current state of Social Security
As long as you’ve been paying into Social Security for ten years or longer, you can start receiving benefits at age 62. However, if you wait until you’re 70 to claim, you will receive larger benefits.
According to SSA, the maximum benefit in 2023 for those retiring at the age of 66 and who had been high earners for 35 years is $3,627 and $4,555 for those over 70. This means that the longer-term benefits for your pension could be substantial if you are in a position to wait.
There are concerns over the future of Social Security due to increasing life expectancy, with more retirees needing financial support. The 2023 Social Security Trustees Report predicts that the main trust fund may run out of reserves as early as 2034. This uncertainty seems to be resonating with millennials with 58% believing that the ever-weakening Social Security is likely the reason that this generation will need to work past retirement age.
According to the CRBP (Committee for a Responsible Federal Budget), potential solutions to combat the anticipated funding gap could include a combination of changes to taxes, benefits, or age requirements. However, the CBPP’s (Centre on Budget and Policy Priorities) evaluation of the Trustees Report notes that there are no tax increases scheduled and the report’s long-term projections are similar to what trustees expected before the pandemic. In fact, the report estimates that the average worker will receive even more support from Social Security by 2075. Despite the conflicting predictions, the report is focused on the next 75 years which will cover the retirement period for working millennials.
Increasing life expectancy
Arguably the biggest factor which influences retirement age is the population’s increasing life expectancy. According to the United Nations, the average lifespan in the United States of America currently stands at 79.11 years, an increase of 9.2 years since 1960. The 2020 Census report predicts that by 2060 the lifespan of the average American is projected to be around 86 years old. While we’re not complaining about the prospect of living longer than previous generations, the need to have a larger nest egg to cover the increased time period, adds an additional financial pressure to those in the workforce today.
Rising costs of healthcare
It’s no secret that the United States is already one of the most expensive countries in the world when it comes to healthcare.
In 2021, the average cost of healthcare per capita (household) was just over $13k, and according to NHEA (National Health Expenditure Accounts), by 2030 this is projected to grow by over $6,000 per capita.
Perhaps unsurprisingly, Americans aged 65 and over spend more on healthcare than any other age group. Medicare spending is predicted to increase from 2.9% in 2022 to 5.9% by 2052. A resource that is automatically available for everyone in this post-retirement age group. With healthcare and Medicare costs showing little sign of slowing down, looking after your physical and mental health by prioritizing your current work/life balance could be a proactive place to start.
Workplace benefits
There is evidence to suggest that millennials may opt not to fully retire at the current national average of 65-6. In fact, 61% of millennials aged between 33 and 40 said they were planning to work part-time during retirement.
However, there is still time for both millennials and generation Z to save for a comfortable retirement and support their desired lifestyle. Choosing an employer that provides benefits such as a 401(k) or access to private pension plans and free or discounted healthcare can make a huge impact on your yearly outgoings and long-term savings.
Of course, high annual salaries will also help to support your retirement plans, so ensuring that you’re earning market rate is of vital importance, not just for your economic welfare today but for a more financially stable future. If you’re not sure whether you are being paid your true worth, then why not speak to one of our specialists who would be happy to discuss your earning potential?
Our headhunting services are completely free for candidates. Whether you want to find out more about the market or what your options are, our talent acquisition specialists are on hand to consult with you across Finance, Legal, and Public Accounting sectors. Contact us today for a no-obligation chat.Sources:
Northwestern Mutual | Forbes | LinkedIn News | pewresearch.org | Investopedia (1) | Investopedia (2) | SSA FAQ | crfb.org | cbpp.org | Macrotrends.net | census.gov | pgpf.org | healthsystemtracker.org | CNBC
