Are Young Adults Saving Enough for Retirement?
Nowadays, when 20-somethings say they “work from home,” it’s highly likely they mean “I work from my parents’ basement.”
In fact, the number of U.S. adults under age 30 living with a parent hit an 80-year high this past summer at 26.6 million, or 52%.
But this isn’t a reflection of bad parenting by the older generation or lackadaisical living by the younger.
It’s a sign of the times.
And it might be the best thing that ever happened to this age group.
The 20-something demographic currently comprises younger millennials (those born between 1981 and 1996) and older Generation Zers (those born between 1997 and 2010). And the economic impact of the pandemic has hit them hard.
In July, 18- to 24-year-olds had the highest unemployment rate of any age group.
Combine that with unprecedented student loan debt, the sky-high cost of urban living and COVID-19 health concerns… and we got a mass exodus to the burbs.
Now, the obvious benefit of moving back home is the ability to mooch live rent- and mortgage-free. But beyond that is the ability to save.
That’s been the silver lining for this age group – a chance to assess, regroup and, in some cases, catch up.
Today’s 20-somethings grew up during the Great Recession – the era of home foreclosures, layoffs and belt-tightening. And now they’re living through another economic crisis.
In other words, they’ve seen the worst. Now they’re preparing and saving accordingly.
Gen Zers in particular are proving to be a thrifty group. This is the demographic that’s upcycling, DIY-ing and comparison shopping. Twelve percent have already started saving for retirement, and 35% plan to begin saving in their 20s.
In this sense, the habits of 20-somethings are mirroring those of the “Greatest Generation.” This group is known for its financial savvy, money caution and thriftiness (sometimes to the point of miserliness). These were the kids who grew up pinching pennies during the Great Depression.
But despite the optimistic start, 20-somethings will still need to live below their means, increase their contributions and work longer if they want to retire “comfortably.”
Because the reality is that the majority of Americans have significantly less – if any at all – saved for retirement than what financial advisors recommend.
For example, Fidelity recommends you have six times your annual salary saved by age 60. The median household income in the U.S. is $56,516, according to the 2015 U.S. Census. That means the average retirement account balance at age 60 should be $339,096.
But that’s not the reality. Far from it…
The average retirement account balance for those ages 60 to 69 is just $182,100. That means we’re coming up about 46% short.
So don’t pity the 20-somethings who have migrated back home.
This economic nightmare could be just what young adults need to buck the trend and start making smarter financial decisions, earlier in life.