For many young people, retirement feels like forever away. Of course, as anyone a little older will tell you, it’s going to sneak up on them faster than they think. The worrying thing about this is that many are falling behind on their retirement savings, leaving them open to a potentially lower quality of life once they reach retirement.
The funds to do what makes you happy in your golden years must be gathered during your working era. So, it’s important to look at why young people are falling behind and consider what can be done about it before it ends up being too late.
Not Maximizing Their Retirement Fund
One of the best ways to set yourself up for retirement is to have a solid investment account. This allows you to maximize your quality of life in later years, especially if you use a tax-advantage account designed for retirement. In the US, this could mean opening a 401(k) and/or a Roth IRA. For Australians, it might mean making voluntary contributions to superannuation or perhaps even opening a self-managed fund and working with one of the best SMSF Accountants Melbourne has to offer. Unfortunately, many young people are missing these opportunities, and in doing so, potentially missing out on hundreds of thousands of dollars in compound interest.
Renting Rather Than Buying
While this one is probably far more about the rising cost of homeownership than young people’s desires to own, renting for longer means more money wasted paying off someone else’s mortgage. This may not seem like a big deal while working, but having to pay rent during retirement is a major contributor to poverty in older individuals, so falling homeownership rates are concerning.
Not Investing
Investments are a solid way to build both wealth and passive income for the future. A high quality stock that pays decent dividends will not only appreciate in value over time — the stock market has always trended upwards in the long term — but will also provide passive income through the dividends.
Young people tend to prioritize other ways of spending their money, however, with many simply keeping their savings in the bank. This option is safe, but it won’t outrun inflation, meaning it’s likely to hurt them in the long run.
Wages Haven’t Kept Up With Cost Of Living
Salaries are higher than they were for previous generations, but the cost of living has skyrocketed. For example, while fifty thousand gross per year used to be a comfortable wage, many struggle to make ends meet on this kind of money nowadays.
This is not because young people can’t stay away from avocado on toast. The truth is, what your money will buy you has greatly decreased, so young people are using a larger percentage of their wages on simply existing, which makes it much harder to save for retirement.
It Simply Isn’t Their Priority
Finally, saving for retirement simply isn’t a priority for many young people. Whether this is because they have more pressing things that require their funds, or because they’d simply rather enjoy life and not worry so much about the future, this trend could prove to be detrimental to their future lifestyles.
While these factors all play a role in how young people are falling behind in terms of saving for retirement, it’s important to remember that they are general in nature. This means they aren’t necessarily applicable to every member of the younger generations (apart from the skyrocketing cost of living). What they do offer is a little insight into the potential causes behind current trends.