In our three-part special report, Money On Our Minds, 草莓传媒 takes a close look at the financial situation of millennials in the D.C. area and how they make ends meet, with a focus on student loan debt, homeownership and retirement planning.
WASHINGTON 鈥� Millennials living in metro areas, paying steep rents and tackling student loan debt might not have retirement planning in the forefront of their minds.
In fact, 66 percent of millennials in the workforce have nothing saved for retirement, according to a report this year from the聽聽which used census data.
But that doesn鈥檛 mean they鈥檙e not thinking about it at all.
Though plenty of millennials have not started to save for retirement, when they have access to a 401(k) plan, their participation skyrockets.
Kathy Stokes, AARP senior adviser on financial resilience, said 90 percent of millennials participate in a 401(k) plan when they’re eligible for it.
Jennifer Juang, 24, works as a graphic designer in D.C., and although she doesn鈥檛 know too much about the ins and outs of her workplace鈥檚 401(k) plan, she is contributing.
鈥淚 know I鈥檓 currently putting a certain percentage of my salary directly toward that, but it feels very passive and I don鈥檛 like that. If I had more income that I could feel more flexible with, then I would definitely feel more aggressive in my investments,鈥� she said.
Juang said she knows that it’s better to start saving for retirement sooner than later, even if it seems so far away.
She is part of a retirement plan that targets its contributors retiring by 2050, but she is unsure that she鈥檒l make that goal with the amount she is contributing.
鈥淚 don鈥檛 know at which age I鈥檒l actually retire and I don鈥檛 know at which age I鈥檒l actually buy a house because everything feels so bleak compared to adults you might ask advice from, Juang said. “When they were our age, they already were looking at houses because it was actually an option for them. But I think that鈥檚 just the millennial struggle. Everything鈥檚 more expensive.”
Despite suggestions that millennials might be wasting their money and lattes, millennial personal finance expert Stefanie O鈥機onnell said this generation actually has pretty good financial habits.
鈥淢illennials are actually saving a greater portion of their income than baby boomers or Gen Xers, but they don鈥檛 have a lot to save,鈥� O鈥機onnell said.
Student loan debt, underemployment, lower salaries and higher health care costs are huge barriers for many millennials鈥� financial security, O鈥機onnell said.
鈥淓specially in big cities like D.C., they鈥檙e contending with these skyrocketing living costs, so it makes the capacity to save a significant amount, or invest, or to build wealth in a meaningful way long-term increasingly a challenge. Even if you do have a good money habit, you might not be able to set that much aside.鈥�
A considerable amount of millennials also work in the gig economy, which means they鈥檙e locked out of employer benefits, Stokes said.
鈥淭here鈥檚 a large share of millennials who work part time or who are low tenure, meaning less than a year in the workforce. And those two things go against them in terms of eligibility in a 401(k) plan,鈥� she said.
鈥淚f you鈥檙e part time, many plans don鈥檛 allow you access. And if you鈥檙e under one year, you typically aren鈥檛 eligible to participate, or you are but aren鈥檛 eligible for the match, and there鈥檚 sometimes confusion in that.鈥�
Since the 1990s, a majority of employers have shifted from a traditional pension system of defined benefits into a 401(k) plan, Stokes said.
While that shift is affecting other generations, it also means most millennials only know a workforce with a 401(k) plan.
鈥淭hey don鈥檛 know a lot 鈥� the mechanics of how a 401(k) plan works are somewhat of an enigma to this generation,” Stokes said. “There鈥檚 a lack of financial education in high school and colleges, and so they get to these plans and they just don鈥檛 really know what to do with them. They don鈥檛 understand how the match works.”
Entering the workforce during a recession has also聽, which can affect their ability to save.
鈥淭here鈥檚 been a lot of that suggests that for those individuals beginning their career at a time when the economy is weak has very for their earnings, for the hours that they work, and also in terms of other life choices聽鈥� so not just about their economic participation but also about their choices for where to live, when to get married, all those sorts of things as well,鈥� said Tara Sinclair, associate professor of economics at George Washington University.
D.C. firefighter Jeremiah Voigt, 35, has a pension through his job but he admits he doesn鈥檛 know the specifics of it. His wife also has a 401(k) through her job in property management because he doesn鈥檛 think they鈥檒l be able to survive solely on his retirement.
For a while, they didn鈥檛 have extra money to save because of the long journey they went through buying a home, he said.
In 2007, Voigt and his wife bought a home in Greenbelt, Maryland.
But a year later, during the recession, they lost more than half the value of it and were stuck in the 1,000-square-foot town house with a baby and a dog until 2015 when the housing market rebounded.
The search for their next home took them all the way to Columbia, Maryland.
Voigt doesn鈥檛 plan on moving again any time soon and he is happy with the location and the access to a good public school system for his son.
Now, Voigt feels he can start planning for the future.
鈥淚 would like to start learning how to invest and start doing some investing. We haven鈥檛 had extra income for a long time. Most of it has gone into getting the house that we want and being in the area we want. So, we have savings, but I won鈥檛 say we have enough savings,鈥� he said.
鈥淲e were paycheck to paycheck for a long time,鈥� he added. 鈥淚 won鈥檛 say we鈥檙e financially savvy, but we鈥檙e comfortable enough that we can do good guesstimates and we have money to put away now.鈥�
How to start saving for retirement now
Stokes stresses the importance of starting to save for retirement as early as possible because the earlier you start, the less of your paycheck you鈥檒l have to put away toward your 鈥渇uture paycheck,鈥� she said.
鈥淚f you wait, that 15 percent is going to become 20 percent or 25 percent, and pretty soon most of your income is going to have to go into supporting your future income in retirement,” Stokes said. “That just doesn鈥檛 work for anybody.”
O鈥機onnell suggests that to get younger people thinking about retirement planning, there needs to be a sense of urgency.
She suggests reframing the plan into five-year chunks.
鈥淧eople talk a lot about retirement in personal finance, and that鈥檚 not really compelling when you鈥檙e in your 20s and 30s. It just feels like some completely distant and inaccessible future. So, I say, let鈥檚 start with a shorter timeline. What do you want to do in five years? And get really specific.”
鈥淥nce you鈥檙e clear on what that vision looks like for yourself, start putting a price tag on it, because you know those things cost money if you want to buy a house, if you want to start a family, or if you want to start a business. All of those things come with a price tag.鈥�
According to O’Connell, one misconception millennials have with retirement planning is that a lot of money is needed to start.
She said the easiest way to start is to take advantage of a company鈥檚 401(k) plan early on, or open an individual retirement account and contribute to it. Then, contribute more when you鈥檙e able to.
鈥淭ime is the greatest asset when it comes to building significant assets in the long term. More than the amount you contribute, the amount of time you invest is the best thing for maximizing your gains,鈥� O’Connell said.
Another misconception, according to O鈥機onnell, is that you have to be a 鈥渟upersmart expert鈥� about finances to start. She suggests turning to the host of online resources that can help.
鈥淲e might not have a lot of money, but we have access to resources in a way that鈥檚 really unprecedented,鈥� she said.
AARP has , such as an interactive 鈥溾�� that asks questions about current saving habits to help plan for retirement. They also offer advice on how to if a person is in a position to do so.
Besides, there are a number of millennial-run financial blogs and podcasts, such as the 鈥溾�� podcast, and the websites 鈥溾�� and 鈥�.鈥�
Another reason to plan early
The sheer number of millennial finance blogs also seems to parallel, perhaps, the uncertainty of financial security not only now but in the future.
The Social Security Trust Fund is expected to be , and even baby boomers are staying in the workforce past when they’re first eligible for retirement.
Stokes said that if it’s not amended between now and 2034, payments could potentially be cut back by a quarter.
That cut would not only affect the generation that is currently collecting benefits but also future generations that are contributing but are not yet relying on Social Security.
“Millennials currently don’t believe that Social Security is going to be there for them,” she added.
A found that even though the majority of millennials are not at all confident about the future of the Social Security system, most of them still plan on relying on it a little in their retirement.
So it鈥檚 important that millennials are building their wealth in some way, even if it鈥檚 not through the traditional path of homeownership, O鈥機onnell said.
鈥淚 recommend building wealth through a diversified investment strategy. Not to say homeownership can鈥檛 be right for some people, it absolutely can be, but I think that it鈥檚 a myth that it鈥檚 the only way to build wealth.”
Women and retirement planning
While millennials may not have extra income to put aside for savings and retirement, O’Connell said they need to be more vigilant in asking for raises at work, especially women.
鈥淚 think the stakes are too high for women not to be taking charge of their finances, not just from a salary perspective but as a whole. We need to be much, much more aggressive; we stand to lose a lot more.”
More , O鈥機onnell said. For women who decide to become mothers and take time off work, they鈥檙e missing out on a substantial amount of earnings.
鈥淏y asking for a raise, you鈥檙e not only paving the way for yourself, you鈥檙e paving the way for the woman who comes after you,鈥� she added.
Stokes said the gender pay gap will have consequences on women鈥檚 retirement savings.
鈥淢ore women tend to work in areas of the economy where they don鈥檛 have access to employer-based plans. It鈥檚 a significant issue,鈥� she said.
O鈥機onnell hopes to see some changes to the structure of employment in the U.S.
鈥淚 think on a policy level, we need to create systems that address this lack of existing financial infrastructure for people and address the reality that people are going to now go through many career changes in their lives. And they鈥檙e going to now have income shocks, meaning there are periods of time where their income either drops to nothing or experiences a significant decrease because of a job change, because we鈥檙e no longer living in a world of 40-year careers or 40 years at one job.”
Stokes added that there needs to be a plan for people who do not work full time.
鈥淎s we鈥檙e sticking to the 401(k) universe and there鈥檚 no chance we鈥檙e going back to the traditional defined benefits pension plans, you鈥檝e got to make the 401(k) plan work for all generations,鈥� she said.
While millennials鈥� financial situations may seem hopeless, one thing that may help is being more intentional with your money and facing the numbers, O’Connell said.
鈥淚t鈥檚 the simplest mindset shift, but it鈥檚 also really tough to get there. Once you do it, you will see your life change dramatically for the better. And from there, your progress might feel slow, but celebrate every single step in the right direction, because that鈥檚 what鈥檚 going to keep you motivated $1 at a time as you pay off a debt, or as you build savings, or as you build your investments.鈥�
鈥淲here you are today does not determine where you can end up,鈥� she added. 鈥淵ou get to dictate what鈥檚 next.鈥�
Juang still feels as if she and many other millennials are left to their own devices on something as serious as retirement and other important financial decisions.
鈥淚 think maybe with our generation or the generation after us, all these big decisions will just be delayed by a few years,鈥� she said.聽鈥淚 don鈥檛 know if what I鈥檓 doing is right. I just feel like I鈥檓 doing what I can with what I know.鈥�
More from the special report, Money On Our Minds:
- Part 1: Millennials attempt to stay afloat amid student loan debt
- Part 2: Student loan debt, wealth divide harming millennials’ homeownership dreams
