This was originally published on Monday, October 17 ,2016 in the Pacific Daily News. Click here to subscribe to the PDN.
Millennials have been in the workforce for nearly two decades. Although they worry mostly about debt, they are pretty knowledgeable when it comes to retirement.
A study by Ramsey Solutions notes that four in 10 Millennials know how old they want to be when they retire, and 38 percent know how much they will need to retire comfortably. Many Millennials want to retire at 60 to 65 years of age.
One of the biggest advantages that Millennials have is time. Since many of them know when and how much they need to retire, they can start planning. The same Ramsey Solution survey noted that 58 percent of Millennials start saving for retirement at the average age of 23. That gives the average Millennial about 40 years to save up for retirement.
Many Millennials don’t foresee that Social Security will be in existence by the time they are of retirement age. According to the Ramsey Solutions survey “Millennials rank Social Security a distant third (44 percent), choosing instead to rely on their own savings through a 401(k) (58 percent) and personal savings/cash (54 percent).”
A lot of debt
Unfortunately, Millennials carry a large amount of debt. Many carry large student loans and credit card debt, and this has become a barrier to saving enough for retirement.
According to a survey on Forbes.com, 14 percent of the Millennials polled have taken a hardship withdrawal from their retirement account with in the last 12 months. Although they have a good while before hitting retirement age, this practice could lead to a pattern that will be hard to break, and cancel out any good that compound interest and time can afford them.
A bad habit
Another unfortunate habit that may devastate a Millennial’s retirement fund is that 42 percent have used pawnshops, payday loans, rent-to-own companies and other substitute financial services. The Forbes.com survey noted 14.1 percent have used an online “peer-to-peer” lender in the past six months. These alternative sources of funding usually are easy to acquire but their interest rates are three to four times higher than a conventional loan.
Millennials have the opportunity to be a little more aggressive with their investments.
Unfortunately, 54 percent of Millennials use their savings accounts to hold their money. Most savings accounts offer dismal interest rates, generally earning less than 1 percent.
Some believe that they will have more money later as they get more experience in the workforce and get promoted. But that is when life usually happens — children, a home, and other things that require money will become a priority.
Millennials should take advantage of an employee offered 401(k) and, if possible, max out their contributions, or at least contribute as much as their employer will match.
By reducing their debt, increasing the amount they put towards saving, and taking advantage of the time that they have to save, Millennials will be one of the most prepared retirement generations.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like him to cover, email him at firstname.lastname@example.org and read past columns at the Money Matters blog at http://www.moneymattersguam.wordpress.com.