That’s one expensive cup a’ Joe.
A new report from Pentegra Retirement Services finds that over 80 percent of millennials are currently saving for retirement, and well over a third are putting at least 5 percent of their salary into a retirement savings vehicle.
However, nearly 18 percent are saving nothing, while almost half are saving at levels under 5 percent, which Pentegra deems as “inadequate.”
In total, 62.75 percent are saving inadequately.
“While it’s encouraging that over 80 percent of millennials surveyed are saving something for retirement, it is troubling that a large portion is saving less than five percent, and some not at all,” Rich Rausser, senior vice president at Pentegra, said in a statement. “This is what we want millennials to really think about. How are you spending your money? What is a ‘need’ versus ‘want’? Retirement may seem decades away, but they must think about it today.”
However, it may not be so easy for this generation he adds.
“We see in our report that many have not been taught what to do and how to do it when it comes to planning for their golden years.”
When asked about spending habits, nearly one-third said they spend $75 or more per week on eating out, including coffee. Unlike necessary expenses—student loans, car payments or rent/mortgage—coffee is a negotiable expense.
“If a millennial spends $5.00 each work day on a cup of gourmet coffee, that is $1,300 a year,” the company notes. “Multiplied by 40 years of active work, the expense is $52,000. Assuming a 6 percent compound annual growth rate, it comes to $152,000.”
“The coffee example is a great way to explain to this generation what a difference small purchases can make, and how valuable long-term compounding is,” Rausser explains. “I am not suggesting they give everything up, but it is certainly possible to cut back and prioritize.”
Among Millennials interviewed for the Pentegra report, many said that they could not imagine thinking about retirement since it is “40 years down the road,” and others could not think beyond their student loan debt.
Some blame a lack of knowledge about saving for retirement from teachers and parents and even suggest high school and colleges offer courses about it.
The report also reveals that many millennials first learn about retirement savings from their employer, and some companies make 401k education easy to understand and contribute.
However, others say that they cannot even afford to contribute to the plan, with student loans and a mortgage or rent to pay. And, if they did contribute, many have dipped into their retirement savings for a “loan.”
Pentegra was particularly taken by the interviewee who suggested taking a photo of the desired treat and revisiting it before deciding whether it is really a necessary purchase.
“It can be difficult in a culture that prizes having the latest and greatest gadget or trend as soon as it comes out,” Rausser emphasized. “But remember, having been the first person on the block to have the iPhone20 will be of little solace 40 years from now.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.