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How to Plan for Your Retirement Effectively If You Are a Working Millennial?

May 22, 2018 | 2 years ago | Read Time: 4 minutes | By iKnowledge Team

Millennials are a group of people who were born after 1984 and are usually accused of being tough to manage. These were the words of Simon Sinek – a motivational speaker, when he was asked about the million-dollar question that broke the internet – who are millennials? While his words received mixed reviews in the form of acceptance and rejection, one fact that none of us can deny is the outlook of millennials towards the future. When we compare it to the previous generation, it is not as solid as it should be. One unnerving example is the new generation’s idea of not securing their future through savings or even plan for retirement. Reason? For an individual in his/her 30s, retiring at 65 years is still a faraway prospect. But is it their fault? Millennials consider being driven by quality education, successful careers, unconventional thinking, travelling, shopping and partying to be all the rage. From “we want it” to “we want it now”, the attitude has changed quickly in the last two decades.

Let us understand this with the help of an example:

Rohan Satyendra, at the age of 28, is a budding architect who believed in both savings and investment. Rohan’s schedule would mostly comprise of shopping, frequent travelling and hard-core partying with his friends.

Today, he is 38 years old and is a father of two girls. Though his lifestyle has changed drastically in terms of travelling and partying; his tendency towards savings and investment has not been affected much. Only a bit of change has occurred in his attitude towards investment. He is more risk averse and wants to make quick money as compared to saving funds for the future. As he is watching his girls grow, quick money is the only big picture he is focusing on, downplaying the importance of retirement planning.

Changing Patterns – Thoughts and Approach

Saving for millennials, who need to shoulder more responsibilities as compared to the older generations, is a daunting task. Reports by leading journals have suggested that millennials, though pretty good in terms of growth and development at present, are negligent about the future and retirement. Here are some of the responses that you might get from them when you talk about retirement planning for youth.

  • Are we going to make it to the retirement?
  • But why not spend now and live in the present?
  • Investing is a 10-time better option than saving.
  • It is never going to be enough. Is it?
  • Let’s not sacrifice the present.

Changing beliefs as covered by global studies

Saving for their golden years is not something which many millennials take seriously. According to a report conducted by the U.S. Census, millennials accounted for more than 25% of the country’s population, yet this significant age-group or workforce is not well prepared for the retirement stage of their lives. If we consider the Indian scenario, the future looks quite bright.

As per the report published by Morgan Stanley Research, with a median age of 29, India is well on its way to becoming the youngest country in the world by the year 2020. Their contribution has been significant in the spurring growth that we are experiencing in recent times. India has more than 400 million millennials, and they account for 46% of its workforce. The millennial income contributes to 70% of total household income. The major talking point here is that how much of that goes towards securing the future?

As per the study conducted by a popular insurance company, Indian millennials spend 69% of their monthly income out of which nearly 50% is spent on family and household items. It is an indication that millennials either save or invest around 25-30% from the remaining income. If we unfold this, we will get to know that this generation is more inclined towards investing as compared to savings. Millennials have a higher investment risk profile than predicted and they do not refrain from taking risks in their stride to get ROI. Much of this can be accredited to the unconventional approach to life as they would like to call it.

But is it unconventional?

The answer is no. One can never downplay the role of savings. While investment can sure change the entire financial landscape of an individual’s life, the role of savings should never be downplayed. According to a study conducted by LinkedIn’s ‘The Affluent Millennial Opportunity’ only 40% population had brokerage accounts, and 60% of the population had not started saving for retirement. Not leaning towards savings is a little disappointing knowing that around 86% millennials consider social media as the major source of providing financial information and influencing financial decision making.  

Understanding the role of savings in future

Millennials, in their need to generate quick finance, often overlook the importance of savings. Financial securities – especially savings, though highly advertised is not something that draws the right awareness. One thing that millennials need to know is that the retirement plans and options they have are not like what their previous generation had. During their time, job security was much more considerable, and retirement benefits were good enough to help them see through enough time post retirement. The current scenario is undoubtedly different. Instant gratification has become the name of the game, and this younger generation needs to save to live peacefully in future. Also, inflation is a factor that must be taken into serious consideration. More than enough funds need to be allocated towards the future as ‘good enough’ then, is already ‘not enough’ now.

A change in perception should not come as a wake-up call

According to Rui Yao, associate professor at the University of Missouri, “Millennials are less likely to have employer-provided pension or defined benefit retirement plans. Additionally, millennials are likely to live longer.” He added that financial education about ‘saving for retirement’ is an absolute necessity.

“With the decline of defined benefit plans, millennials need to know much more about investing for retirement than their parents or grandparents did.”

Concluding this piece, we can say that there is a need for generations to understand each other deeply. Not just the bifurcation through the class but also through age, aspirations, motivations and financial planning which differ greatly.

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Advt. No.: IA/May 2018/3953


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