Introduction 

• I wanted to focus on this topic given some rather worrying articles & findings which have been coming out in recent months on Millennials and there inability and unwillingness to saving for the future. Whilst many things for us millennials are much better than previous generations; smartphones, noise-cancelling headphones and Netflix to name a few, our prospects of having a comfortable well financed retirement is definitely not one of them.
• Millennials are being hit by an avalanche of things putting pressure on their retirement and their ability to save for it. These pressures range from George Osborne’s raid on middle class pension pots with his reforms, to the increased cost of living and inability to get on the property ladder, especially in London. Another important factor is a change in priorities for today’s young. Historically young people have been willing to forgo experiences and luxuries to save for their future, not today. Millennials are more focused on experiences rather than objects, spending to keep your Facebook or Instagram ‘Digital life’ looking better than your friends and winning you extra views or likes.
• The aim of this piece is three-fold; (1) discuss the problem in detail, highlight and explore the issues at the heart of the problem (2) show how I am fairing against this tidal wave issue (3) highlight the best things you can do to try to change things for yourself.
• I’ll conclude on an opportunist note, highlighting that time is the biggest financial asset we millennials have, so there is time to fix and reverse the trend!

The Problem 

• The fundamental problem is that young people aren’t saving enough money now to allow them to have a comfortable income in their retirement.
• According to a survey by the Chartered Institute for Securities and Investments millennials are prioritizing short-term spending over long-term saving. The average 25-year-old should be saving £800 a month over the next 40 years, in order to retire at 65 with an annual income of £30,000. http://www.ft.com/cms/s/2/94e97eee-ce9a-11e5-831d-09f7778e7377.html#axzz422FYoEUV
• This added to the fact the that the UKs Institute for Fiscal Studies recently highlighted that the income of the average 22- to 30-year-old remains stubbornly 8 per cent lower than it was in 2008 paints a very depressing picture; we aren’t saving enough and incomes aren’t rising to help us.
• I’m sure this isn’t too unusual, it is human nature not just ‘millennial-nature’ to not plan well enough for the future, and prioritize short-term spending over long-term saving. However, this doesn’t mean that you should just accept it. If you are 20 today and put $1 aside, earning the historical 6.6% return (inflation-adjusted) that the Standard & Poor’s 500-stock index has captured, by the time you are 65, that single dollar will have become $18.50. If you put the same $1 aside aged 30, by the time you are 65 its only worth $9.60, that’s half the potential gains you got if you put it away at 20. Not saving now really hinders the quality of life you can sustain in your retirement.
• To make matters worse the current Conservative Government is also having it’s own raid on pensions to tackle the aging population of the UK. In the UK there are 10.3 million people aged 65 and over, this is a massive 80 per cent increase over six decades, from 1951 (http://researchbriefings.files.parliament.uk/documents/SN03228/SN03228.pdf). The rapid growth of this age group is stretching the limits of state supported retirement. This has led George Osbourne to bring in a number of policies in the last few years to curb the generosity of pensions, the biggest being the further reduction of lifetime pension allowance from £1.25m to £1m. This may seem like a massive amount of money, but for every £10,000 of annual retirement income, you need £200,000 in your pension, therefore to get £50,000 a year in your retirement you’ll need a pension of £1m. Attacks are also taking place on the state pension, meaning individuals – even with full National Insurance contributions – can’t fall back on this.
• Overall, millennials aren’t saving enough at a time when they really need to be saving more. Although it really is a rather depressing picture, there is one saving grace – the biggest financial asset millennials have is time, we all have time to understand the facts and respond to them.

How I am fairing 

• Born in 1990 I am most definitely a  quintessential Millennial, so how am I fairing?
• I’m fortunate to have a good job, enabling me to pay 10.5% of my income and my employee pays 5%. On top of this I pay £150 & £100 into two other long-term investment vehicles I use (I will be posting a blog soon on those specific vehicles so watch this space).
• Based on the number suggested by the Chartered Institute for Securities and Investments I am doing pretty well, investing/saving slightly more than the recommended £800 per month.
• However, the current economic climate is not playing it’s part! With the current state of the global economy I am lucky that I am getting a positive return on my investments at all, and nowhere near the historical 6.6% return rate. The S&P 500 is 5% down year on year and an average Cash ISA is offering less than 1%. Without any support it would take me around a decade to get onto the London property ladder.
• Overall I am better positioned than many millennials but am still finding it rather difficult to put enough away to look after myself in retirement.

What you can do to change things 

• If you are fairing worse than me, don’t worry, there are a number of things you can do to address it. T Rowe Price recommends that millennials should save about 15% of their incomes for retirement. The average saving rate of Millennials is currently 8% so if you sit in the middle of the bell curve you’ve got some work to do.
• I believe there are three main things – all of which are very simple to understand and follow – that all millennials can be doing to ensure they increase the amount they are investing and saving for their future:
• Know the problem & acknowledge it – As they say, acceptance is half the battle. By acknowledging the problem, and consciously being aware of it, you will subconsciously amend your behaviour to less short-term spending and more long-term saving. I suggest blocking out 30 minutes once a month to sit down and concentrate on what you are saving and what you could start doing to save more.
• Create Clearly Defined Saving Goals – However little it might be start saving SOMETHING today. This will get you into the habit of saving and get you thinking about other potential ways you can increase that amount. Ensure you are regularly reviewing how much you are saving and try to increase the amount every few months. Doing this slow but steady increase will make it easier for you deal with the loss of money from your monthly pay packet.
• Pay Your Future Self First – Everyone in the UK is now auto-enrolled into a workplace pension. This means that money is taken from your pay cheque and paid into your pension before you receive your monthly salary. Make sure you maximise this amount to whatever you can afford. The concept of paying your future self first is easy, take as much money as you can afford to live without and put it in a pension or long term investment vehicle. For your workplace pension this is done for you, but you can do a similar thing with your own savings/investments. Set up direct debts for your saving/investment account for immediately after you get paid. This will ensure your ‘future self’ gets paid before anyone else, that includes rent, food shopping, holiday fund etc. Doing this will help your budgeting and ensure you don’t keep putting off your future.

Conclusion 

• In conclusion, there are a multitude of different financial pressures placed on millennials at the moment. These make the work pressures of growing up and adapting to ‘real life’ much harder, and mean that we all must focus on our future self and not just our present day self. To help tackle these, be aware and conscious of the problem, automate your saving transactions as much as possible and save as much as you can afford to each month. Finally, don’t get too depressed, remember the most important financial asset we millennials have is time; time to change our behaviour and start saving more, and time for those savings to grow and benefit greatly from compound interest.

 

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