Meet the Generation That Will Never Retire

hey guys what's up I'm Ain and welcome back to the channel I recently read an article by Business Insider titled meet the generation that may never retire specifically speaking about Millennials this article starts off by citing a study from Northwestern Mutual saying that the typical Millennial says they need about $1.7 million in order to retire comfortably which happens to be the highest of all generations however while the current typical Millennial may feel they need that $1.7 million by the time they hit retirement the typical amount that those aged 28 to 43 actually have saved up for retirement is just about $63,000 according to that same Northwestern Mutual study and all of this is assuming a retirement age of about 64 years old something that really is in line with a more typical retirement age and while the gap between what Millennials actually have saved up or what any of the generations actually have saved up versus the Target that they say they're aiming for is very large it's worth keeping in mind that Millennials have anywhere from two to perhaps three decades until they reach full retirement age and a lot of Headway can be made in that time also it's worth keeping in mind that when it comes to compounding growth happens in an exponential fashion it's really slow to get started but then it really takes off and to truly highlight this point of just how difficult it might be for Millennials to hit this target Business Insider uses an example they interviewed a 36-year-old business professional with a six-figure income this individual says she actually got a late start to saving and investing and has only been doing so for about 10 years but in that short time she's been able to grow her Investment Portfolio to about $280,000 which I would argue puts her in amazing Financial shape especially when you consider the typical account balances for those in this age cohort this individual has the goal of retiring at the age of 65 so 29 years down the road and she has a goal of replacing 80% of her pre-retirement income now this idea of replacing 80% of your pre-retirement income once you hit retirement is actually pretty on par with typical Financial advice but from here this example kind of deviates into unusual territory the article goes on to say assuming a 4% annual investment return on her $280,000 savings she'd have about $900,000 in 30 years her Target retirement date this calculation is accurate but it's made under the assumption that this 36-year-old will never again contribute to her savings and Investments for the next 30 Years also using a long-term projected rate of return of 4% does seem surprisingly low we often talk about 4% in terms of being a safe rate of withdrawal not long-term market performance longterm the market has far in a way exceeded this performance level the article continues with she'd have to invest an additional $40,000 each year to get to 3 million in savings by age 65 that's likely a very aggressive savings rate and again it's made under the assumption of a long-term rate of return of just 4% so I hope these numbers are causing other people's ears to perk up like they did mine because I feel like these are two extreme examples this individual said that the recommended saving Target felt impossible adding ideally I'd like to overshoot the Target and actually have something to pass down to family but it is depressing to think I might not even be able to save enough for myself honestly that reaction made me really sad for her in this first example that Business Insider gives they say that this individual who has been working really hard saving and investing for 10 years and able to build up an entire portfolio that's now valued at $280,000 just suddenly stop saving and investing altogether but continues working for the next 30 Years that doesn't seem likely this doesn't seem like the type of individual who would just stop saving an investing altogether sure she may reduce her savings rate but stopping altogether seems unlikely the other example they give hinges on her saving $40,000 a year for the next three decades it feels like there could be some kind of Middle Ground I think headlines like this promote that feeling of discouragement and maybe it's a common thought but there's certainly steps you can take to put yourself in a better position one of the biggest feelings for those who are early or mid-career age is that feeling of being lost the woman from our Business Insider article summed this up perfectly I have no idea where I'll be at that point in my life to me it seems almost impossible to guess what is really needed and quite honestly I think that is so incredibly relatable when you're in your 20s you're 30s your 40s it is so hard to conceptualize what your life will look like in your 60s I feel like I'm in the same boat I have no idea what my life will look like at that point I don't know where I'm going to live at that point maybe not even just the house but what part of the country I have no idea what I'm going to want at that stage of life I have no idea what my family Dynamic will look like I also have no idea what the stock market will do over the next handful of decades or what inflation will look like there are so many unknowns and so many ways in which life can throw you curveballs that you never even saw coming no one knows what's going to happen in the next 20 30 or 40 years down the road maybe there's comfort in knowing that we're all kind of in the same boat the best you can do at this point is kind of have a general Target when you're that far out you can use these retirement calculators to somewhat pick a number that you're aiming for and please keep in mind that I do think it's important to have a target number that you're actually aiming for but also keep in mind that this number will change over time it'll change as your life changes it'll change as different things happen have a goal but be flexible the best answer is to Simply keep saving and investing so you're making progress when it comes to investing for long periods of time and wanting to hit lofty invest M targets it's important to not invest too conservatively how you invest in your mid-30s should be very different from how you invest when you're in your mid-60s if you're in your mid-30s aiming for a retirement in your mid-60s you have a lot of time ahead of you that means you're able to handle the up and down fluctuations of the market it's okay to be invested aggressively at this point on the other hand if you're in your mid-60s and fully retired and relying on your Investment Portfolio to provide you a steady income stream you might want less volatility in your portfolio and that brings us back to the biggest assumption made in these examples which is a long-term rate of return of 4% and I think if you're hanging your hat on a long-term rate of return of 4% over the next several decades I would argue that's too conservative and if that sounds like a realistic rate of return to you I would argue that you're investing too conservatively when you talk to Financial professionals yes you will get a range of expected long-term rates of return and expected rates of return are never guaranteed you don't know what the future holds but historically speaking the stock market itself has averaged a long-term rate of return of about 10% from that number you do want to factor in long-term inflation which has been 2 to 3% and that's going to give you a long-term rate of return of anywhere from 7 to 8% if we go back to those examples from the article which originally assumed a 4% rate of return saying that this investor would be able to grow her portfolio to about $900,000 if she never contributed another dime or would have to save $4 ,000 a year in order to hit her Target of $3 million but instead we changed that rate of return to 8% if she never contributed another dollar to her Investments her portfolio could grow to $2.8 million if she wanted to hit that $3 million Mark she would only have to contribute $2,000 a year these are vastly different scenarios and I would argue far more realistic considering how long of a time frame she has left and also considering how aggressive of a saor and investor she has been over the past 10 years in fact in the article she says her original Target was $6 million but she gave up on that as a possibility after running the numbers while using a more realistic rate of return we can see that she would need to contribute about $29,000 a year or about $2,400 a month in order to hit this target now is that level of savings possible I don't know it depends on her situation but I can say that it's dang impressive that she was able to build an investment port folio of $280,000 in just 10 years so it might be if you have a long Runway make sure you're not investing too conservatively give your money the opportunity to compound this means taking advantage of the stock market using stock-based index funds like ones that track the S&P or the total stock market funds making sure to give yourself the opportunity to capture that growth one of the very biggest obstacles to wealth creation is lifestyle creep and I feel like lifestyle creep gets a lot of attention in the person personal finance space and rightfully so because we live in a world where we're constantly bombarded with the message to buy the latest and greatest thing or experience and to keep up with what everyone else is doing if every time your pay increases slightly you increase your lifestyle at the same rate you buy that nicer car or the nicer home or slurge on a nicer vacation whatever it may be you will never be able to get ahead financially and that's not to say that there's anything wrong with elevating your lifestyle over time quite frankly most of us don't want to continue living like a broke 20-year-old by the time we hit 40 but that is why I'm a huge fan of percentage-based models when it comes to saving and investing saving a set percentage of your income means that as your income increases so too does the total dollar amount that you're actually saving it's okay to elevate your lifestyle a little bit as your income increases but just make sure you're also increasing your level of savings as long as you're doing that you'll be just fine the current savings rate in America is only about 3% so you do yourself a great service if you're aiming to to hit that recommended 10 to 15% of your income to ensure that you are prepared for your future Embrace change isn't there a popular quote along the lines of the only constant is change well it's true what lies ahead in your life is largely unknown what lies ahead with your Investments is largely unknown technology is evolving and changing at a pace that we've never before seen and this is going to affect your life and it's going to affect your Investments I think the most important thing you can do is stay focused on what's within your realm of control your savings rate spending habits investment choices and career growth by concentrating on these aspects you can build a more resilient and adaptable retirement plan a traditional retirement at the age of 65 may not be feasible for everyone be open to Alternative retirement paths such as semi-retirement freelance work or part-time jobs and also very important to mention those numbers cited in the Northwestern Mutual study that each generation says that they need to hit in order to have a comfortable retirement for most those numbers are aspirational when we consider what people actually have saved up for retirement as they step away from the workforce the reality is those bank account balances look vastly different so take heart in knowing there are many ways to make things work nothing is set in stone planning for retirement can be daunting especially with the challenges we Face however maintaining a positive attitude and staying persistent in your efforts can make a significant difference remember your retirement journey is unique create a plan that works for you do you think retirement is still possible for your generation what generation are you in leave your thoughts in a comment down below I post new videos every single week if you got anything at all out of this one please give it a like if you're new here please consider subscribing or if you know of someone who might get something out of this type of content please consider sharing I'll see you soon bye

Channel: Erin Talks Money

Views: 18,757

Keywords: personal finance, wealth building, investing, never retire, retirement, retirement planning, millennial money, millennial, saving money, investing money, saving for the future, building wealth, how to retire, how much do i need to retire, when can I retire

Id: lVR7xQBGFtI

Length: 11min 55sec (715 seconds)

Published: Fri Jun 07 2024