Financial planner Eric Streso, urges young adults to start saving for retirement as early as possible in their twenties. While this is far easier said than done and with the increasing cost of living, saving for retirement has become less of a priority for the young adults of today!
“Many people will face a substantial drop in their monthly income once they retire, which will mean their savings will have to stretch for 20 years, if not longer, after retirement. A particular group of people who are going to face the retirement crisis are millennials,” says Streso.
Millennials refers to the generation of people born between the early 1980s and 1990s. The millennial generation is also known as Generation Y, referring to the questioning nature of this generation, who have been taught to not take everything at face value but to question the reason why something is. Here are some of the reasons why millennials may be failing to save for retirement:
- Increasing cost of living – The increasing cost of living has not helped millennials make provision for savings. The main contributors to the increased cost of living include higher petrol prices, transportation costs and rising food costs.
- Changing nature of employment – Despite the current unemployment crisis in South Africa, a future crisis looms with more young adults changing careers, starting small businesses and freelancing their skills. Millennials have a desire to pursue work that is personally meaningful, this has affected the skills sets that they hold and the type of jobs they seek. Perks such as pension and provident funds are mainly provided for by large corporates and/or government jobs.
- Servicing debt – Personal debt is a big problem among millennials, this generation faces unique financial challenges that make them vulnerable to debt. These challenges include caring financially for relatives, financing of their own studies and funding start-ups. With credit becoming easily available at stores, online and through the bank. It is not surprising that many young adults are finding themselves in a fair amount of debt that will take them years to pay off (which they will only do if they are disciplined).
- The instant gratification generation – millennials have been dubbed the “I want it now” generation. Implying that they don’t have the patience to see through long term investing. This lack of patience coupled with impulsiveness and low levels of financial literacy does not lend itself to a workforce that thinks beyond the short term. The social media influencer clutter also has a psychological impact on young adults to have it all… now. This includes expensive branded products and a heightened importance to display a high status living inclusive of flashy cars and trendy apartments.
“A simple rule of thumb that millennials can apply when it comes to managing their income and making provision for saving is the 50-30-20 rule. 50% of your salary should cover your essential expenses. 20% should be directed towards your investments and personal goals. And the remaining 30% for flexible, or non-essential spending. However, if you have existing personal debt, you should use the 30% to pay off the debt,” advises Streso.
Young adults should consider seeking advice from a financial adviser, or debt counsellor as these are skilled professionals who have the big picture understanding to provide financial services to people, based on their financial situation. They can help you plan for short, medium, and long-term investing goals and identify the best investment options for your current stage in life. The best part is that they also help you with projections for future earnings, which will provide a clear direction and actionable steps you can take to reach your financial goals.
“Saving for retirement is not something easily achievable, it requires projection, patience and persistence. I personally feel young people need to be taught further on this from school level when planning for their future.“ concludes Streso.