Millennials are optimistic about how their lives will play out after college, despite the fact that they have a collective $1 trillion in student loan, credit card, and other debt hanging over their heads.
“Millennials are graduating at record rates, and it’s great to see that like most previous generations of college students, young people are optimistic about the future. On average, survey respondents expect to land a job in their chosen field and be completely financially independent by age 25,” notes JJ Kinahan, chief strategist for TD Ameritrade. “This is a financially optimistic group that’s feeling positive about the economy, the job market and their own plans. However, they will need to develop saving and investing habits that will help them reach some pretty big goals.”
Redefining Life Milestones for Millennials
“Millennials are a generation that has vastly different attitudes and habits than previous generations. So naturally, their lives and financial milestones after college may look different as well,” Kinahan explains. According to the TD Ameritrade 2018 Millennials and Money Survey:
- Fifty-three percent expect to become millionaires at some point.
- Twenty-four percent said they don’t expect to get married, and nearly that many don’t expect to own a home.
- Thirty percent of millennials don’t expect to have kids.
- Despite the general optimism, two in ten said they’re never going to be able to pay off their student loans.
- Nearly 17 percent haven’t yet achieved financial independence from their parents; for those who have, it’s usually moving out of the family home that triggers being financially cut-off.
Planning to Retire Early or Not at All
One milestone in particular is going to need some extra attention. Millennials reported that they expect to retire at age 56 on average (millennial men expect to retire even earlier, at age 53 on average). However, on average, they said they don’t plan to start saving for retirement until age 36, which could be more than a decade after getting their first real job. Twenty-eight percent said they don’t expect to retire at any point.
“One of the greatest investments young people can make in themselves is to start putting money away in their 20s. Because of the power of compounding (Einstein called it the eighth wonder of the world), even with ups and downs along the way, those who start early potentially can end up with more in the end,” explains Kinahan. “Ideally, it would be wise to start right after college, and while some millennials certainly do that, we realize that’s not always possible. Understanding all of the available alternatives, like employer-sponsored retirement accounts or brokerage accounts, can be a step in a right direction. And, if you’re not sure, talk to someone. The sooner you can get started, the better your financial prospects may be.”
Consider this example of someone who begins investing $5,000 a year at age 22 and continues to put that amount of money away until they retire at 67, earning an assumed 6 percent return. They’d end up with twice the money as an investor who did the same thing starting at age 32. It could mean the difference between retiring with half a million dollars versus retiring with $1 million, according to a New York Times analysis. That’s the power of compound returns.
- Many millennials are making strides and overall, more rate themselves as savers than did in 2016 (70 percent versus 62 percent). Ninety-four percent of millennials said they are saving toward a specific goal – vacation (43 percent) and emergency fund (39 percent) being the top choices.
- Thirty-eight percent are saving for retirement.
- Twenty-five percent have started saving for the education of their children or grandchildren.
Pursuing Financial Goals
Kinahan offers some financial tips for millennials who may need to look at additional financial strategies to pursue their goals:
- Don’t delay! Waiting to save for retirement can be costly. Giving investments the longest possible time to grow attempts to take advantage of the power of compounding, even with the downturns that take place along the way.
- Know your numbers. Find out how much more you can contribute each year to pursue your retirement goal. For 401(k)s as of 2018, employees can contribute a max of $18,500 (up from prior years), likely not a realistic level for most people at this age, but certainly a great goal.
- Tack on an IRA. Grads who snag a job with a 401(k) retirement plan and employer match should consider themselves lucky. But a 401(k) is only one piece of the puzzle. Young adults should also consider opening an IRA and making regular contributions.
- Negotiate salary. An un-negotiated salary is a missed opportunity. You could be leaving money on the table simply by not asking. Of those polled, only half negotiated their salaries or compensation at their most recent job.
- Put windfalls to work. Try not to get carried away during tax season and bonus season. Windfalls, even small ones, can be an extra splash of cash for your retirement accounts. If you can, think about “spending some, saving some.”
- Get smart. Only 32 percent of millennials said they’re very knowledgeable about investing. Free investing education resources are available that fit every learning style.