Retirement & Millennials
Written by Katherine Powers, Gig Harbor Real Estate Broker Millennials
We define the millennial generation as those who were born from 1980 – 2000. I am one of them, born in 1985. I have been on my own for 12 years now and have accomplished more, and failed more, than many people my parent’s age. If you follow my blog, I will go into detail about my successes and failures, with the hope that someone might learn from what I have done. I believe with this experience, I am in a unique position to speak to my fellow Millennials about what we need to do to live our lives in a financially responsible manner, with the wisdom only experience can bring, while still learning with you along the way.
When we think of retirement today, we think of that final office party, our colleagues sending us of after celebrating our 40 years of career achievements. We picture ourselves leaving the office, box of our personal items in hand, knowing our retirement accounts are full, 401Ks are funded and we are fully vested in company sponsored pensions – headed for a life of vacations and relaxation. Of course, our home is paid off, and we have a nice little social security check rolling in every month. While the housing crash of 2008 hit many very hard, this type of retirement is still a reality for some baby boomers (born 1940-1960), and maybe even a few within Generation X (born 1960-1980), but short of trust fund babies, very few of us will experience such a retirement.
This traditional idea of retirement truly is only a dream for Millennials. It no longer exists. The average person changes careers every 7 years. That’s CAREERS, not jobs. Even if you were to stay at one company on average for 7 years, it is not enough to generate a sufficient amount of company matched retirement funds. 7 years is not enough to become vested into a pension, if you are lucky enough to be working for one of the last remaining companies that provide that benefit. Many of us hop from job to job every few years, which wreaks havoc on our personal finances. Many of us consider ourselves successful when we are able to pay this month’s bills and debt service with enough left over to go out to dinner. We cannot even rely on Social Security, a government program we pay into every time we get paid. At current rates, Social Security funds will be fully exhausted sometime around 2032. Although the government may reform the Social Security system (as it desperately needs), we cannot rely on it to be there when we retire. But, saving for retirement is hard. We keep thinking, “Once I accomplish _(Fill in the blank)_, then I’ll start thinking about retirement.”
The problem is that everything that has been taught about retirement has focused on “Set it and forget it.” For example, the retirement calculators out there only calculate the monthly savings required. General advice says “take a little every month, and save. Start early. Live below your means for your whole life, etc.” All of this is actually really good advice. However, it also assumes:
You have a steady monthly income for most or all of your working life.
Your investments will PASSIVELY make you enough, even considering inflation, to retire at a reasonable age.
Your company probably will assist you in your retirement savings.
You can live below your means all your working life to save $500 – $1500 per month.
You start EARLY!
Is this really a good plan? Does it work? Sure it does – if all these things apply to you. But, if this seems impossible, which I believe it is for many of us Millennials, we are left with no helpful advice and no plan; and with that, no chance of achieving retirement.
So, what can we do? We do what this generation does best – take matters into our own hands and figure it out!
Just like the way we like to learn – hands on, trial & error – we dig in and start proactively working towards retirement. We work to increase our net worth, not just to make the next car payment. We use credit cards to build credit and to leverage, not to finance a lifestyle we cannot afford. We proactively invest in real estate where we can make super ROI’s. We fully fund our IRAs yearly and aggressively invest (with the help of a professional, of course). This is taking conscious and intentional steps forward towards our goal. This is the opposite of “Set it and forget it.”
The New Retirement is Financial Independence
Our retirement is not going to be that of our parents and grandparents. In addition to saving for traditional retirement, we need is to work to change our ACTIVE income (that which we get from working, wages, commissions, tips, etc.) to PASSIVE income (rental properties, interest baring accounts, company profits). Passive income is income we get for owning something, not doing something. With Passive Income, although it may take “bursts” of energy (finding a new tenant for a rental property, hiring a new manager for your company), you do not have to spend your days working towards an income. THIS is what the new retirement looks like.