Experts: How Millennials Can Navigate Common Obstacles To Saving For Retirement

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Wages had been stagnating for 30 years since the early 1970s by the time the oldest millennials started trickling into the workforce at the turn of the 21st century. Since the late 1970s, productivity grew by nearly 62% in that time, but pay rose by less than 18%.

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With their first jobs, millennials rode the trend of flat wages straight into the Great Recession and an economic implosion the likes of which the country hadn’t since the Depression. 

The college money they borrowed to get those jobs and the housing crisis that the implosion created made it harder for millennials to save for retirement than the generations that came before.

They’re still feeling the effects now as they enter middle age.  

College Became More Important and Less Affordable

According to the Bureau of Labor Statistics (BLS), every education level achieved comes with higher median earnings, from less than $600 per week for those with no high school diploma all the way up to nearly $1,900 a week for a doctoral or professional degree. A four-year degree pays more than an associate’s degree, a master’s pays more than a bachelor’s degree, and up the ladder it goes.

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Many millennials, of course, found success through alternative paths like entrepreneurialism or non-college trades. But for the first new hires of the digital age, the connection was clear — in most cases, you needed a degree to compete for the big-money, new-economy jobs. 

The problem, according to Georgetown University, was that the cost of college rose by 169% between 1980 — the year before the oldest millennials were born — and 2019.

The result is that today, nearly 15 million millennials have student loan debt, according to the Education Data Initiative — more than any other generation. For many of those 15 million, what would have been their monthly retirement contributions are paid instead to an investment bank.

How Can Millennials Save For Retirement and Also Pay Their Student Loans?

The Biden administration had been accepting applications for up to $10,000 in federal student loan forgiveness to eligible borrowers — $20,000 to Pell grant recipients. But the federal courts have blocked that policy and millions of millennials and other borrowers are now in limbo as the legal drama plays out — but that doesn’t mean they’re out of options.

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“If your student loans are holding you back, you can devote yourself to paying off the loan fast by paying more than the minimum when you can and making biweekly payments instead of monthly payments,” said Tom Koesternen, a chartered financial analyst with TheGuaranteedLoans

By making half-payments twice per month, you make one full extra payment per year without much noticeable impact on your day-to-day lifestyle. Then, you’ll be better positioned to dedicate windfalls like tax returns to your retirement fund instead of feeling the need to put some toward your college debt.

For now, at least, President Joe Biden has extended the student loan repayment moratorium through mid-2023, so save, plan and prepare while you can.

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Unaffordable Housing Created the Other Big Obstacle

For the most part, baby boomers and older Gen Xers enjoyed pensions, affordable college and, best of all, reasonable housing costs. 

Millennials were the first generation to draw the short straw on all three counts.

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According to data compiled by the real estate site Anytime Estimate, home prices have increased by 1,608% since 1970, while overall inflation has risen by 644%.

In 1985, when the oldest millennials were just starting preschool, most baby boomers were in their 30s and the average home cost $82,800. By 2019, when most millennials were in their 30s, housing costs had risen by 393% to $313,000 and millennials faced a 31% higher home-price-to-income ratio.

“The main challenge has been the increase in housing costs,” Koesternen said. “The high prices have forced millennials to spend a considerable amount of their income on rent and mortgages, which leaves little for them to save.” 

Koesternen recommends downsizing to a smaller home, taking on roommates and choosing a place to live based on living and housing costs. But, according to Mortgage Professional America, those fixes don’t change the fact that overwhelming majorities of millennials report homeownership as a top priority that they simply can’t afford if they’re ever going to save for retirement.

The Keys Are Diligence, Consistency and the Right Accounts

There’s little disagreement about the obstacles that have kept so many millennials from building suitable nest eggs. 

“Their generation entered the workforce during the Great Recession, starting off at a disadvantage,” said Healthy Wealthy Roots founder Traci Williams, a certified financial therapist and board-certified clinical psychologist who specializes in millennials and Gen Z. “The combination of large amounts of student debt, high costs of living, and expensive housing have most impacted the money attitudes of millennials. Combine this with social media displays of luxury living pushing people to pursue a lifestyle above their means, and we’re left with a recipe for disaster.”

The tried-and-true solution is to treat retirement savings like a bill that must be paid no matter the wants that must be sacrificed — and if nothing else, always get every dollar out of a 401(k) company match. 

“Millennials should take advantage of any tax-advantaged retirement savings accounts offered by their employer,” said Erik Pham, CEO of the health and wellness publication HealthCanal. “Doing so allows them to reduce their taxable income and save for retirement at the same time.”

If there’s anything left after meeting their pretax 401(k) match — or if their jobs don’t provide a retirement plan — a less popular but more versatile after-tax retirement savings vehicle might be the perfect account.  

“Investing in low-cost index funds within a Roth IRA makes sense for most millennials,” Williams said. “They can auto-deposit their money now for tax-free withdrawals in the future.”

The most important thing is regular contributions, even if those contributions are small. “Automating their retirement savings through direct deposits can help millennials build a habit of saving and ensure that they are investing consistently over the long term,” Pham said.

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for, a financial publication in the heart of Wall Street's investment community in New York City.
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