Millennials are both the most educated and ethnically diverse generation in the history of the United States. Unfortunately, they may also be the generation that's most unprepared for retirement.
The Center for Retirement Research at Boston College compared millennials born between 1981 through 1999 with previous generations, using data from the 2019 Federal Reserve's Survey of Consumer Finances.
The results showed that aside from the current pandemic affecting people of all generations, millennials are facing specific challenges, including;
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Student debts: Many millennials left school with substantial student debts and started their careers in a job market affected by the recession.
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Social security will provide fewer benefits relative to pre-retirement earnings. Their 401(k) savings are meager, and about half of the working population don't have access to a workplace retirement plan.
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They'll likely spend more years in retirement due to rising life expectancy, increasing healthcare costs, inflated healthcare product prices, and historically low-interest rates. These factors lead to a delay in significant life milestones like accumulating substantial wealth, getting married, or owning a home.
The fact that Millenials entered the labor market during such hard times as the great recession or the bursting of dot.com could have impacted the successes they made. It would have been particularly hard on most millennial men, who had to work under labor force participation rates below what was obtainable for older generations.
Fortunately, by their late 30s, the participation rates for millennial men had increased. On the other hand, millennial women appear to be less affected by the weak economy early in their careers.
Similarly, the millennials' homeownership pattern is increasing, looking comparable to older generations. Buying a home is often correlated with marriage, so it's no surprise that as millennials' marriage rates increased, the homeownership rate also soared. By age 38, over 60 percent of millennials owned homes, just like people from earlier generations.
However, one aspect millennials haven't made up for is in their retirement planning. The average ratio of net wealth to income is significantly lower for millennials than older generations, even millennial households in their late 30s.
A significant reason for this wealth difference is student loans. Outstanding student debts burden 40% of millennial households between the ages of 28 to 38. Amongst other household income, these debts take up about 40% of their income.
When you take out student loans, the average wealth to income ratio for millennials will look identical to those for older generations.
So the major area millennials are doing poorly in is wealth accumulation. They are saving for retirement at a lower rate than older generations, as student loans constantly take off a huge chunk of their income. The millennials' low wealth in their 30s should be an issue of concern, given that they're likely to live longer than previous generations and may receive less support from Social Security.
