For a generation often criticized for its jaded, world-weary attitude, millennials are suddenly a welcome ray of sunshine in a sea of retirement-related negativity. According to a just-released survey by New York Life, 66% of Americans aged 30 to 35 think they'll be in better shape for retirement going forward than in previous years. Their older counterparts, however, feel much differently. Only 46% of Gen Xers are optimistic about retirement, while just 33% of boomers think positively in this regard.
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And it's not as if millennials have saved more than those in their 40s, 50s, and beyond. As my colleague Brian Stoffel reported, workers in their 30s have less money socked away for retirement than most other age groups. But millennials do have one secret weapon in their corner that workers in their 40s, 50s, and 60s simply can't beat: time.
How much can you save if you start early enough?
Perhaps the reason millennials are so optimistic about the future is that they know they have time on their side. And time buys you more than just extra compounding; it also means you can invest comfortably in the stock market without having to worry about a downturn.
There's no question that the stock market is a volatile beast. In fact, between 1965 and 2015, the S&P 500 underwent 27 corrections of 10% or more. But here's the thing: It ultimately recovered from each and every one. What this means is that if you have time to ride out the market's ups and downs, you stand a strong chance of coming out ahead financially. And with retirement a good 30 to 35 years away, that's exactly what older millennials have going for them.
Of course, there are less risky investments that won't make you sweat nearly as much as stocks -- but those options don't offer nearly the same returns in the long run. When I tell people to invest in stocks, it's not because I enjoy taking risks with money; it's because history has proved that a stock-heavy portfolio can generate an average annual 8% return over time, and that kind of return that can be pivotal in growing our nest eggs. And the earlier you start saving, the more you can capitalize on the power of strong returns.
The following table shows how much a stock-focused portfolio can grow to based on the age at which you start saving and investing:
TABLE AND CALCULATIONS BY AUTHOR.
Check out the difference between kick-starting your savings efforts at age 30 versus age 40. In our example, we used $400 a month as a savings basis, so delaying retirement contributions for an entire decade means putting $48,000 less into the pot. But that missing $48,000 will, in reality, end up costing you far more -- $556,000 more, to be precise. It's easy enough to let retirement savings fall by the wayside in the face of life's expenses. But if you don't use the power of time to your advantage, you'll really wind up missing out.
Finding ways to save
If you're living paycheck to paycheck, which is the case for many of us regardless of age, contributing to a retirement account might seem like a grand impossibility. But if you're willing to make a few sacrifices up front, you'll reap the rewards down the line.
As a starting point, make sure you have a household budget. A good 60% of Americans don't, but without one, you'll have a harder time figuring out where your money is really going and where you might have opportunities to save.
Once you have that budget in place, you'll need to start cutting corners, whether it's downsizing your living space, unloading your car in favor of public transportation, or limiting your leisure spending. If you really don't have any wiggle room in your budget (meaning you eat instant noodles every night and live in a studio apartment with four roommates), you'll need to get on board with the idea of a second job. Working just a few nights a week, or even a few weekends a year, can get you closer to your savings goals.
No matter what steps you take to ramp up your savings, the key is to contribute to a retirement account while you're still relatively young, and then invest that money wisely. And the more money you put away now, the more comfortable a retirement you'll buy yourself in the future.
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