Millennials confront mounting financial obstacles that threaten their ability to retire comfortably one day in the future.
With rising costs, stagnant wages, and shifting employment trends, many in this generation struggle to build sufficient savings through traditional retirement plans such as 401(k)s and IRAs (Individual Retirement Accounts).
Erin Lowry, author of the Broke Millennial series of personal finance books, urges her generational cohort to get started contributing to employer-sponsored 401(k) plans and tax-advantaged IRAs as soon as possible.
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One of the biggest concerns among millennials is the possibility of outliving their savings. Increasing housing expenses are another major hurdle.
Inflation also exacerbates financial insecurity. Millennials feel the strain of rising costs for essentials such as health care, cars and other everyday expenses.
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Student loan debt has further delayed retirement planning for many millennials. The Great Recession of 2008 and the rise of gig economy jobs have disrupted traditional career paths, leaving many without access to employer-sponsored 401(k) plans.
In response to these challenges, some millennials are turning to alternative strategies, including aggressive investing, financial independence movements such as FIRE (Financial Independence, Retire Early), and digital tools to optimize savings.
However, experts stress the importance of using 401(k)s and IRAs to build long-term financial security.
Lowry emphasizes the fact that, as millennials navigate these financial hurdles, the need for proactive retirement planning is increasingly important.
A couple is seen paying close attention to money and finances. Broke Millennial author Erin Lowry urges young people to waste no time getting started on contributing to 401(k) plans and IRAs.
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Broke Millennial author discusses 401(k) plans and IRAs
In her book Broke Millennial Takes on Investing, Lowry recalls a time at 23 years old when she was talking with a new manager at work. The manager had told her that she could log in to the company’s benefits portal and learn about setting up a 401(k) — as well as a pre-tax transit card and health savings account.
“I smiled tightly and nodded at my new manager as if I had any idea what she’d just said to me,” Lowry wrote. “The term 401(k) sounded familiar, but those other two terms meant nothing.”
Lowry responded to the experience by educating herself as much and as quickly as she could about retirement planning. She grew in her wealth of knowledge and is now passionate about offering personal finance advice for other millennials. She shares her thoughts in her books, online and in speaking engagements.
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She describes a 401(k) contribution example using imaginary names — in this case, Jake and Stacey, with Jake delaying participating in a 401(k) plan for 10 years after Stacey started with hers.
“Jake tried to catch up to Stacey after waiting ten years to start contributing to his 401(k),” Lowry wrote. “Stacey contributed only 4 percent of her salary in order to get the employer match. Jake contributed 10 percent, more than double what Stacey did, but he was still $100,000 behind her when they both retired at sixty-two.”
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Broke Millennial author urges people to contribute to 401(k)s and IRAs now
Lowry strongly argues that people should not delay investing in a 401(k) plan.
“Allow me to momentarily stay on my soapbox a bit longer and refer you to the following scenario … to explain why it’s imperative that you start now,” she wrote in her book. “Like, ‘Put this book down after my rant and go sign up for your 401(k) or open an IRA’ kind of now.”
Then, Lowry explained the hypothetical situation to which she was referring.
“Assume twenty-one-year-old Kim saves $300 per month (or $3,600 per year) from now until she retires at age sixty-eight and receives a real rate of return of 4 percent,” Lowry wrote. “She would have approximately $500,000 at retirement. If Kim waits ten years to start saving, at thirty-one, she would need to save approximately $500 per month (or $6,000 per year) to achieve the same balance at retirement.”
“Compound interest,” Lowry added. “She’s a beautiful, beautiful thing — when she’s on your side.”
Compound interest is the interest calculated on both the initial principal and the accumulated interest from previous periods. It allows savings or investments to grow exponentially over time.
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