The American Dream is changing and so are millennials' savings habits.
Gone are the days when settling into the company you would be a part of until retirement was the standard. Millennials see their golden years in a much different light than previous generations, and they're proving to be far more active in doing something about the cards they have been dealt. The good news is that millennials are on track to become the most highly educated generation, according to a study by Pew Research Center. As a result, they're not only expecting future financial obstacles, they are planning to meet them head on.
Many U.S. millennials also have outstanding student debt. Through 2012, the average millennial was about $17,000 in the red, according to a study by New America. In addition, more than three-quarters of baby boomers have experienced a job layoff, divorce, hardship in dealing with mortgages, health issues, or the onset of frailty in the health of their own parents or in-laws, according to a study by J.P. Morgan Asset Management. As millennials have grown up, they've watched their parents face these problems. Now, millennials see their parents falling back on pension plans and collecting Social Security benefits. However, the new generation is quickly realizing that those benefits - which they are paying into regularly - will probably run dry before they will be able to collect themselves.
But younger Americans are not necessarily being discouraged. According to the study by J.P. Morgan, millennials are changing the way that future generations are saving for retirement. Many millennials have started by stockpiling money earlier, living within their means and contributing to their 401(k)s early in their 20s. Individuals off to an even bigger head start are putting away more than 10 percent, if they are able.
"Whatever their household income level - median, affluent or high net worth - optimizing 401(k) contributions and after-tax savings, combined with prudent and consistent investing, will help millennials meet their retirement challenge," said Katherine Roy, chief retirement strategist at J.P. Morgan, in a statement by the company on recently published findings.
Retirement-planning game changers
A recent analysis on millennials' saving methods by Forbes likens retirement planning to smoothing out comfort consumption throughout your life. It's about seeing where you stand, and not getting too hasty about the idea of oncoming retirement. Millennials may require more time to stay in the workforce than their predecessors - perhaps by working well into their 80s, according to Forbes.
"Forbes describes saving for retirement like smoothing out comfort consumption throughout your life."
When taking this new outlook to working, millennials may learn to approach life - and their long-term career - from new angles. Dustyn Lanz, a Toronto resident, experienced the economic crisis of 2008 and 2009 in his mid-20s. He was angry that the system had allowed for such errors, and vowed to do something about it.
"I was frustrated by the irresponsible actors in the world of finance, and how [their actions] could have such broad consequences," Lanz told the International Business Times.
Lanz now works as director of the Responsible Investment Association, helping others like him invest their money in a socially responsible manner, while simultaneously growing their own portfolio. Socially responsible investing is growing in popularity among millennials, which IBT nicknamed "the cautious, sympathetic generation." Some socially responsible investments listed by RIA, such as the Parnassus Endeavor Fund, can yield up to 11.49 percent annually, according to IBT.
Back to Blog
Whether or not this form of socially conscious investing is viable for the long term remains to be seen. However, millennials are proving that the future may not be quite as bleak as many experts had formerly assumed.