As the oldest population of Millennials approaches middle age, possibly one of the biggest questions on their minds relates to retirement, specifically with regards to when they will be able to retire and how they will get there. Of course, even the youngest, working Millennials find themselves pondering the same from time to time as they look ahead. Whatever their position on the demographic scale, the average Millennial isn’t unfortunately all that hopeful for a retirement that mirrors their parents’ generation.
The reality is that it’s hard being a Millennial. On the one hand, there’s the emotional stress of growing up in a world that witnessed major acts of terrorism, experienced multiple economic recessions, mapped new territories on the digital landscape, for better or worse, ignited social change and the growing pains that come along with it, saw an exponential decline in its climate, and is currently managing — or mismanaging, depending on your point view — a pandemic. And on the other hand, there’s the financial ramifications of some of these events, from crippling student debt and a virtually impenetrable housing market to increased costs of living and a lack of concrete employment benefits.
Millennials are, in short, living in a financial circus of sorts that renders the path to retirement a seemingly endless tightrope walk away. Indeed, Millennials are generally balancing — or perhaps more correctly, struggling to balance — saving for their future and paying for their present. Too often, the necessity becomes focusing on the latter at the detriment of the former. As a result, Millennials are reportedly far behind on retirement savings than Generation X.
The Cost of Retirement in Canada
Naturally, how much an individual needs to have saved for retirement depends greatly upon a multitude of factors. Things like the age of retirement, the location, the kind of lifestyle one would like to live, whether one still has dependents (and how many), and/or unpaid mortgages or other kinds of debt all need to be considered when calculating one’s total cost of retirement in Canada.
That being said, many financial planners generally suggest that 70 per cent of one’s yearly income, pre-retirement, is needed to help pay for expenses for one year of retirement. For example: using the median market income in Canada, $55,700, one year of retirement would essentially cost $38,990. This number then becomes multiplied by the number of years expected to live in retirement (which, on average, is 25 years). Therefore, an individual making $55,700 with the goal of living in retirement for 25 years will need to have saved a total sum of $974,750.
There’s a vast amount of literature, digital and otherwise, that offers many tips for saving for retirement, from setting aside 15 per cent of your income in your 20s and signing up for employer-provided retirement savings plans to contributing to an RRSP or TFSA in your 30s. It’s solid advice, to be sure, but most Millennials would likely agree that these measures are practically impossible to follow and, frankly, outdated.
Why Millennials Are Facing Challenges When It Comes to Retirement Savings
The most important thing to note about the challenges Millennials face when saving for retirement is that it’s a systemic struggle. Despite being the most educated generation, Millennials are suffering the highest amounts of student debt and encountering the most expensive housing market while living in the most uncertain of times. As such, the income an average Millennial makes today goes primarily towards a plethora of expenses that make it difficult to save for tomorrow.
Since paying off student debt is, indeed, the main priority for Millennials, it puts off saving for a down payment on a home—both of which are exacerbated by the soaring rental prices and increased costs of living, particularly in large urban centres, where a lot of Millennials reside—which, in turn, delays the urgency of saving for retirement. In fact, recent studies have shown that Millennials won’t be able to retire until they’re 70 years old (or, in the worst cases, not at all), about five to ten years later than Generation X generally expects to retire. If the average Millennial did want to retire at 65, studies suggest that nearly half of their paycheque needs to be put away starting today, which isn’t feasible when the average Millennial today is already allocating 45 per cent of her income towards rent.
What Needs to Be Done to Secure Millennials’ Retirement
It’s not impossible for Millennials to start saving for retirement. In fact, contrary to older generations’ popular belief that Millennials are spending their money on frivolity and leisure, Millennials are actively preparing for retirement, saving and even investing what they can, playing with their cards they’re dealt. As a tech-savvy generation, some Millennials are even turning towards investing in cryptocurrency.
However, a systemic problem does require a systemic solution, especially when the odds are very stacked against an entire generation of Canadians—and it starts from the top. Branches of government can, for instance, help Millennials manage and pay off their towering student debts, thereby assisting them in breaking into the housing market. Additionally, employers can innovate their retirement benefits packages to suit a generation of workers that, unlike Generation X, isn’t all that keen on growing old within a singular company.
Foremost, change begins with understanding Millennials: their desires, their struggles, their goals, financial and otherwise, and their approach to work and life and everything in between and thereafter. Millennials are navigating structures that were built for a different generation and are expected to follow templates designed for a different generation. But the world has changed exponentially within the last few decades. Retirement, which was once a kind of rite of passage—a celebration of your contribution to society, a blank page ready to be coloured in—has now, for many, become a luxury.
Jericho Tadeo | Contributing Writer