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Updated on Thursday, February 26, 2015
My parents are baby boomers. Like many in their generation, their financial confidence and retirement savings were shaken by the 2008 recession – leaving them now in their mid-sixties asking, “Can I ever retire?”
It seems funny that I, 35 years younger and just starting out in my career should be asking myself the same question. But years of scraping by on an actor’s salary with barely enough to cover basic living expenses, let alone fund long term savings, has made me question the sustainability of my financial life, both short and long-term.
A Worried Generation
It turns out I’m not alone in my financial insecurities. The entire millennial generation seems to be facing a retirement “crisis”, even from forty years away. The issue isn’t necessarily one of poor planning, so much as it is bad timing.
I graduated college in May of 2008. At the time, I celebrated the possibilities and potential of life post-grad in the prosperous “real world”. By the end of that year however, the outlook couldn’t have been more bleak.
While the 2050s, my target retirement years, were a far cry away from 2008, the effect of the recession and the subsequent years of slow economic growth and lagging job market recovery had a lasting impact.
The Ramifications of the Employment Struggle
According to researchers, college students who graduate into a weak labor market can see their job opportunities and earnings affected for 10 to 15 years. Yale University’s Joseph Altonji found that graduating into a high unemployment economy translates to a roughly 1.8 percent earnings loss per year over the span of a decade. And graduates in fields that pay less than average can see income losses of 50 percent larger than average- that’s if they’re lucky enough to have a job in the first place. As of December 2014, the unemployment rate for 18- to 34- year olds was 7.9 percent as compared with 5.6 percent for the economy as a whole.
Couple all this millennial un- and under-employment with record student debt levels and it starts to become clear how 20 and 30-somethings may be facing retirement challenges far greater than boomers and Gen X-ers.
How Debt Impacts Retirement
The Project on Student Debt found that the average debt load carried by 2013 graduates of four-year nonprofit colleges was $28,400. It’s understandable why millennials feel they have too much debt to save for retirement. With millennials spending the entirety of their 20s, if not longer, paying off student loans, they miss out on the most important decade of retirement savings.
This investment in higher education hasn’t necessarily provided a better return on investment either. According to a 2013 study by the Center for College Affordability and Productivity, nearly half of workers with college degrees were working in jobs that didn’t even require a college education. That means millennials are carrying around record debt loads while working low paying jobs, many without access to employer-sponsored retirement plans.
I know many of my fellow 2008 graduates are now going on 30 without ever having had access to a 401(k). Employer sponsored pensions are already becoming a thing of the past and the future of social security is far from certain. Without reliable access to stable, long-term careers, retirement planning is becoming an entirely self-driven endeavor for many millennials – a daunting task for those without any formal financial education, which according to a February 2014 poll by TD bank, is 69 percent.
While financial illiteracy might not be unique to millennials, this new reality of independent retirement planning is. Millennials are required to make more financial decisions on their own and they are not prepared to handle them.
How to Handle Your Own Retirement Fund
The good news is relevant financial information and resources are more accessible to individuals than ever. While many millennials may have missed out on early years of retirement savings because of low paying jobs and student loan debt, as 20- and early 30-somethings, time is still on their side.
According to a Wells Fargo survey, 80 percent of millennials said the Great Recession taught them the importance of saving and being prepared for economic problems down the road. The 15th Annual Transamerica Retirement Survey found that 74 percent of millennials are starting to save for retirement at an unprecedented median age of 22, 5 years sooner than gen Xers and 13 years sooner than baby boomers.
Even I, in my uncertain career path and limited earnings have taken responsibility for my future by putting my own retirement accounts into place. I was 24 when I read my first money book, “Investing for Dummies.” By the end of the year I had opened a ROTH IRA and committed to contributing a percentage of each paycheck to my future, regardless of how my income fluctuated. When you make retirement as non-negotiable as food and housing, you no longer rely on an employer or government benefits or a possible future raise to take care of you or serve as a catalyst to save.
That personal responsibility coupled with another 30 to 40 years of time on my side will hopefully result in a resounding “yes” when it comes time to ask myself if I can afford to retire.