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According to the World Economic Forum’s Investing in (and for) Our Future report, the vast majority of retirees today will outlive their retirement savings by between eight and almost 20 years on average. There’s a certain shock-value to that statistic, but it still sheds light on a growing issue: while life expectancy continues to rise, many people’s retirement savings aren’t keeping up.
Pull quote: “44% of South African adults aren’t actively saving, and a third have no retirement plan at all.” - 2020 Baseline Survey on Financial Literacy
For millennials (those born between 1981 and 1996) the challenge is even more pressing. Faced with the combination of a distinct set of financial hurdles and the prospect of much longer lives, this generation’s retirement strategies will need to look very different from those that came before.
Millennials in hot water
Millennials not only face the prospect of longer lifespans, which demand more extensive retirement planning, but they also inherit the financial fallout of prior generations’ inadequate preparation. Many millennials therefore find themselves shouldering dual responsibilities: planning for their own future while financially supporting parents or relatives who lack sufficient retirement savings. This dual burden amplifies the existing shortfall, making it more urgent than ever for this generation to break the cycle through proactive financial planning and disciplined saving strategies.
The cost of education
Student loan debt heavily burdens millennials, with many carrying balances that take decades to repay, often consuming a significant portion of their monthly income. These payments can delay important milestones, like purchasing a home or starting a family, as disposable income is stretched thin.
The housing crisis
At the same time, housing costs have surged in many parts of the world, outpacing wage growth. Renting has become the norm for many millennials, not by choice but by necessity, as skyrocketing property prices make homeownership seem like a distant dream. Although renting is often cheaper than owning, few have the financial discipline to save the difference effectively.
Delayed retirement planning
These overlapping challenges make it difficult to focus on long-term goals, like building a retirement fund. Yet, delaying retirement planning only exacerbates the problem, as the power of compound interest diminishes with time. Balancing immediate obligations with future planning is no easy task, but it’s a vital step toward achieving financial stability and avoiding dire consequences later in life.
How millennials can win retirement
Adjusting savings goals upward, diversifying income streams, and planning for longevity are essential steps to prevent outliving retirement savings. It may also be time to accept that the idea of retiring at 65 is becoming less realistic. A flexible approach to retirement age could be key to closing the savings gap. This might involve transitioning into part-time work or pursuing a second career in later years.
Save like a millennial
- Side hustles provide an accessible way to supplement earnings. Freelancing in fields like graphic design or writing, teaching skills or languages online, or turning hobbies like crafting or baking into a source of income are all viable options.
- Developing new skills is another effective strategy. Certifications, in-demand technical skills, and advanced qualifications can lead to higher-paying roles or promotions. Online platforms offering affordable and flexible courses make this a practical option for those already juggling full-time jobs or other responsibilities.
- Additional income loses its value if it’s spent servicing debt instead of building savings. Millennials need to be wary of overextending themselves and getting into unhealthy debt as a result. Financing a new car, having an account with a clothing store and taking out loans to pay for experiences like travel or a wedding are all examples of unhealthy debt.
- While it may seem counterintuitive (due to the fact that they are already projected to live longer), millennials also need to ensure that they are taking care of their health. By investing in their health, they can reduce their medical expenses in the long run and ensure that their retirement savings aren’t spent on treating avoidable health challenges.
Ending the cycle and looking ahead
Despite all of these proactive approaches, millennials still face a unique and often underappreciated challenge: supporting retired parents who have outlived their own savings. While providing for family is a cultural expectation in many societies, it’s essential to strike a balance. Millennials need to remember that prioritising their own retirement savings doesn’t mean neglecting their parents - instead, it’s about ensuring that their financial future remains stable.
Without this balance, they risk repeating the cycle, potentially relying on their children to support them later in life. Setting clear boundaries, exploring alternative support systems for aging parents, and creating a sustainable financial plan are crucial steps to ensure that both generations can thrive without overburdening one another.
The challenges facing millennials are clear, but so are the opportunities. By starting early, embracing diverse income streams, and planning for the future, millennials can rewrite the retirement narrative. A longer life doesn’t have to lead to financial uncertainty. The solution lies in taking action today.
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