Last week, Alessandra Malito published an article for MarketWatch titled Money Milestones: This is how your finances should look in your 30s which caused an uproar among millennials on Twitter.
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Subsequently, Malito published an article titled Want to make millennials mad? Talk about saving for retirement which empathizes with those who responded to the tweet but also emphasizes that young people DO need to prioritize saving for retirement.
However, her original article was simply reporting the data found by a Fidelity study. The 2X salary in savings by age 35 number was based on having 10X your salary saved by age 67, which is on the low end of some suggestions. Ben Carlson, who publishes A Wealth of Common Sense, found that a college graduate starting at a $40K salary would need to begin saving 11.0% of his or her income income at age 22 to have 2x their salary saved by age 35 (see the assumptions for his analysis here). If you consider that most employers provide a match of 3%, this would mean that (in a perfect world) you’d need to contribute 8% of your income to reach Fidelity’s benchmark by age 35.
Doesn’t seem too outrageous to me.
If you start at that 8% and continue to increase your contributions by 1% per year (which you’re likely not going to feel), then you’ll be in an even better position. The longer you wait to begin saving, the more you have to save to reach Fidelity’s savings suggestion.
I’ve written about lifestyle creep before which is when you continue spending more as you earn more rather than saving more as you earn more. The earlier that you begin saving, the easier it’s going to be to limit lifestyle creep and to reach a savings goal. The longer you wait to save the longer you will become accustomed to living on your total income, including bonuses that you receive, which will further inflate your lifestyle.
It will be much harder to adjust your spending habits in the future to start saving more than it will be to begin saving now and never have that money deposited in your bank account to spend.
When the Social Security Act was signed into law in 1935 by FDR, the average life expectancy was 61 years old, according to Stanford. Social Security wasn’t created to sustain the 30-year retirements that we see today and there haven’t been any changes significant enough to ensure that the Social Security Trust Fund will remain solvent beyond 2037. Additionally, the majority of young people won’t have pensions to fall back on as past generations have.
I agree that you should enjoy your life and your money, but the simple fact of the matter is that it’s more on us to save for our retirement than it ever has been before.
I don’t believe that you should live on beans and rice and never enjoy your money, but I do believe that you should be a good steward of your money and use it wisely. There’s a huge difference between needs and wants and some of us need to quit spending so much on wants (housing that is too expensive brand-new cars when a cheaper, used car will do, and eating out) and focus on our needs (saving for our future, housing that is good enough, a car that is good enough, groceries that are much cheaper than eating out).
I know that some of us have student loan payments that we feel like are crushing us, but housing, transportation, and food are three HUGE expenses that we likely can control to some extent to help provide room in our budgets to save.
If you want to live a secure retirement and create a better future for your family, then prioritize your savings. It may mean not living in a luxury apartment, driving a new car, or going out to eat and socializing as much as you’d like, but financial freedom and peace of mind mean much more to me than those things.
