As millennials begin to turn 40 in 2021, CNBC Make It has launched Middle-Aged Millennials, a series exploring how the oldest members of this generation have grown into adulthood amid the backdrop of the Great Recession and the Covid-19 pandemic, student loans, stagnant wages and rising costs of living.
For Marissa Hathaway, saving for retirement was never a big priority compared to all the other expenses she needed to juggle as a single mom. Between paying for child care, rent, groceries, and other bills, there was just never much left over.
"I make under $100,000 a year and because of my ginormous student loans, I have not been able to save for my retirement, which makes me feel terrible," Hathaway says.
But Hathaway, a therapist based in Dallas, says turning 37 this year made her stop and reassess her priorities, especially since her son is heading off to kindergarten in the fall and there will hopefully be some extra money in her budget once she stops paying $550 a month for part-time private daycare.
"For the longest time, I really was just kind of chunking just a very small amount into my 401(k), because I only have so much money," Hathaway says. "Now, being 37, it's like, something's got to give, you've got to get serious about this."
While Hathaway says she's buckling down and contributing more to her retirement accounts — she has about $10,000 saved so far — she's not sure it will be enough for a traditional retirement where she's able to completely stop working at 65. And as a single parent, she can't rely on a partner's income to help buffer her expenses and savings.
Instead, Hathaway is actively planning to continue to work, at least part-time, long past a traditional retirement age. "The definition of retirement for some people is changing," Hathaway says.
Hathaway is not alone. About 61% of older millennials born between 1981 and 1988 say they're planning to work a second job or pick up part-time work during retirement, according to a recent survey conducted by The Harris Poll on behalf of CNBC Make It among over 1,000 U.S. adults between ages 33 and 40.
Planning to work in retirement is not a new phenomenon. Millennials, Gen X and baby boomers all share similar expectations of working during retirement, a TransAmerica survey found last year.
But not all older millennials see working during retirement as a bad thing, or even as a result of not being able to save enough. On the contrary, many see it as an opportunity to slow down and do work they're more interested in.
Older millennials will likely approach retirement differently
Steve Clayton, a 38-year-old in Rehoboth Beach, Delaware, plans to retire early, likely within the next 10 years. However, he wants to continue to work — just at a more leisurely pace in a second career or doing volunteer work. Currently, the executive for a large multi-specialty medical group makes a six-figure salary and has about $450,000 saved.
"We're making sacrifices now, but hopefully that'll pay off in being able to go in a different direction at a relatively young age," Clayton says. Clayton's husband, Brad, is 42 and plans to retire in the next four years, while Clayton wants to work a bit longer before pivoting.
Above all, Clayton wants his second career to have a meaningful impact in his community. "I want my work or my time to feel like it's contributing to the greater good. That's really what drives me," he says.
In fact, many older millennials are fairly optimistic about their retirement plans, with 71% saying they believe they'll be able to live comfortably in retirement and 65% believe they'll be able to retire when they want.
Whether they are prepared or not, increased longevity and ongoing advances in health care mean that older millennials are likely looking at a much longer time horizon than their parents and grandparents, says Joseph Coughlin, director of the AgeLab at the Massachusetts Institute of Technology.
That longevity will likely change the way many millennials approach their later years, including the number who choose to work. "You're going to see a generation of people who are not going to have any one career, they're going to have multiple careers," Coughlin says.
Many millennials plan to work longer not only because their overall health is better, but because the nature of their work has changed profoundly. In the silent generation and the first wave of baby boomers, work was far more physical. Today, many millennials' careers are based in front of a computer.
This is also a generation that values experiences and wants to give back. Those motivations will likely drive millennials to prioritize different goals for their later years than previous generations. Many millennials are likely to want their retirement to be more than simply walking along the beach, playing golf and sipping wine, Coughlin says.
Instead, he expects this cohort to be more mobile. "I don't mean just in terms of travel," he says. "I think you may see them move many more times after age 50 than we've seen any previous generation in history."
Many millennials are actually on track for retirement
While millennials often get criticized for their lack of financial preparation, many in this cohort are not in dire straits when it comes to saving. Older millennials currently have a median retirement savings rate of 13% of their income, according to the survey from CNBC Make It and Harris Poll.
And millennials may be more focused on retirement than previous generations. About 15% of those ages 23 to 38 in 2019 reported their primary reason for saving was retirement, compared to just 9% of the same age bracket of baby boomers in 1989, according to the Investment Company Institute (ICI) analysis of data from the Federal Reserve Board Survey of Consumer Finances.
Moreover, a recent Wells Fargo report found that millennials started saving for retirement at an average age of 25, much younger Gen X (age 30) or boomers (age 36).
That's due, in part, to the fact that 401(k) plans and individual retirement accounts are much more of the norm for this generation than previous age groups. Helpful tools like auto-enrollment and employer matches are also commonplace.
Millennials born between 1981 and 1997 who have continuously invested in their retirement plans for the past 15 years have an average balance of $261,700 as of March 2021, retirement-plan provider Fidelity finds.
That puts them on track for a comfortable retirement. For the oldest millennials turning 40 this year, Fidelity recommends having three times their annual salary already saved. Older millennials take home about $3,200 a month in median pay, or about $38,400 per year, according to those surveyed by CNBC and Harris. Three times that would be about $115,200.
This preparation could lead to fewer members of this generation needing to rely strictly on Social Security benefits, which currently only amount to an average of $1,543 per month. About 40% of retired Americans currently rely solely on Social Security income, The National Institute for Retirement Security reported. But if millennials keep pace, far more of them may have additional income and investments to rely on as well.
Others less certain about what the future holds
Not all older millennials, of course, are confident they'll have a comfortable retirement. Over a third of millennials believe they'll never be able to stop working and 35% say they do not anticipate having enough money to retire comfortably, according to a survey from the National Association of Financial Planners fielded earlier this year.
In many respects, this stems from the fact that millennials have lived through two major economic recessions in their early adult years, which put many behind in their careers and savings. Black, Hispanic and less-educated households of older millennials were also much more likely to experience significant financial insecurity as a result of the Covid-19 pandemic, according to research from the St. Louis Fed's Institute for Economic Equity.
"A lot of this generation want that financial flexibility, want the ability to step out of the workforce and come back, want to be able to work in areas that they are passionate about. But if you're someone who is constantly trying to catch up with retirement, who got started late or who has different influences or factors in your life where you haven't been able to contribute as much, you may never be able to do that," says Kelly Lannan, vice president, young investors for Fidelity.
But the good news is that time is on their side. Even the oldest millennials, those turning 40 this year, still have about 20 to 30 years before they retire.
Many millennials are juggling higher education and housing costs, but many are also taking advantage of investing and saving strategies, says Sarah Holden, ICI's senior director of retirement and investor research. Plus, millennials are typically more educated than previous generations, which will also likely help. Those with college degrees or higher typically out earn those without a bachelor's degree and also have more stable employment.
And it's never too late to start saving for retirement. Hathaway, for instance, met with a financial planner to help her navigate her financial goals and create a game plan. "I did get a good idea of what I really needed to do," she says, but admits even with a plan, she still sometimes gets down when thinking about her financial situation and the future.
"I just think that all I can do is keep doing what I'm doing and save as much as I can, stay on a budget as best I can, and try not to compare myself to everyone else."
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