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Getting 20-somethings to save

By Jennie L. Phipps · Bankrate.com
Tuesday, October 18, 2011
Posted: 4 pm ET

This is National Save for Retirement Week. A good time to encourage the next generation to start doing some retirement planning.

If you've ever tried it, chances are you know that getting kids in their 20s to save is a challenge. One of my sons just cashed out the automatic retirement plan he had when he worked for the State of Massachusetts. I tried to persuade him to roll it over into a IRA, but all he could see was dollars available to buy a new bass amp. He's not convinced he's ever going to get old.

ING Direct, a subsidiary of ING Bank, did a survey that proves that my son isn't the only 20-something dragging his feet. According to ING:

  • Only 32 percent of 20-somethings are currently contributing to a retirement plan.
  • The other two-thirds -- 68 percent to be exact -- don't have a retirement account at all.
  • Just 19 percent have any kind of emergency savings.
  • Some 21 percent say their highest financial priority is paying off student loans.

TIAA-CREF calculates that the average member of Gen Y will need to have accumulated a minimum of $1.4 million -- probably $2 million -- to live in retirement. It offers the chart below as an example of why this is true. I think it is pretty horrifying.

What to expect in 2050

To get these numbers TIAA-CREF used the average 4.4 percent inflation rate for the past 39 years (1979-2010) and applied that rate to the next 39 years (2011-2050), to generate estimated costs.

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5 Comments
Wolverine
October 19, 2011 at 10:28 am

I agree with Omega. It's much like when I was a kid and I used to hear about how gum used to cost a penny and now you can find it from anywhere to 50 cents to up to 2 dollars.

Sure, a movie ticket might cost 70 bucks in 40 years, but whose to say minimum wage won't be 35 bucks an hour by then?

There are a LOT of variables missing in this article.

Just using one variable (inflation percent) is way too broad of a picture, but hey, let's be sensationalist!

Rob
October 19, 2011 at 9:57 am

For those who are interested in understanding how other individuals in this demographic save, we have created a new website at iuba.com that allows users to understand and learn about the financial decisions of their peers. Hope people enjoy the website and find it useful.

PorkChop
October 19, 2011 at 9:18 am

How can they predict average home prices will rise based off of past inflation. If I'm not mistaken one of the biggest talks of the last three years is deflation of home value. Not inflation.

OmegaSD
October 19, 2011 at 9:14 am

Wow, I think that's a pretty bad projection from a pretty big name. For one thing, I doubt a gallon of milk will ever cost $20 while the government has price-controls in place. And since it's a fairly common thing for people of all incomes to purchase, it will be watched carefully. Secondly, there are already jeans that cost $200; not a huge leap to 2050. Lastly, this says nothing of how income may rise over the years. I say "may" because it is possible to have stagflation, but overall, especially over a 40-year window, rising costs of living will generally require rising incomes by employers to keep their employees.

P.S. I am one of the 20-somethings alluded to in this article. I definitely believe the financial landscape is only going to get grimmer, so I'm taking steps now. But I don't think it'll be as bad as these "projections" (and I do financial predictions for a living).

Wolverine
October 19, 2011 at 8:36 am

You should have just told your son the truth, that he's never going to be able to retire.

At least not until he's like 75...
So maybe it's not too late. He still has 50 years to go.

The days of retiring in your mid 50's after working 30 years for one company are long, long, long gone...

That's the new reality.