In 2016, the Center for Retirement Research (CRR) at Boston College reported that the Millennial generation was behind Generation X and Baby Boomers in retirement preparedness. The researchers attributed this to labor market conditions when Millennials exited college and to student loan debt.
However, a LendingTree survey of 1,550 consumers conducted January 8 through January 11 suggests there are other factors at play in keeping Millennials behind their older counterparts. More than one-quarter of Americans ages 40 and younger indicated there’s no reason for them to be saving for retirement.
The firm points out that the earlier a person starts saving for retirement, the more money they’ll have at the time of retirement because of compounding interest.
In addition, the LendingTree survey found 47% of Millennials believe they shouldn’t invest until they’ve paid off all their debt. Doing the math, it can seem that this is a true statement. But, LendingTree notes, it depends on the type of investing a person is doing and the type of debt they have.
“Low-interest, long-term debt like mortgage debt isn’t particularly burdensome on your finances, so you can feel safe investing as long as you have an emergency fund in place,” LendingTree says. “And low-risk investing, like putting money into your retirement account, is something you can do even if you do have a bit of credit card debt.”
But student loan debt is holding Millennials back. New data for 2019 from the CRR shows that Millennials are catching up in the labor market and have similar retirement savings compared to members of Generation X and Baby Boomers. Still, the researchers say, Millennials’ huge student debt burden leaves them well behind their older counterparts in wealth accumulation.
“This slower wealth buildup is of particular concern as Millennials will need more than prior cohorts due to longer lifespans and less support from Social Security,” the researchers say.
In a report about how student loan debt increased households’ risk for having inadequate income in retirement, researchers at the CRR suggested that college costs should be included in broader policy discussions about how to improve lifelong financial security. While nothing has yet been done about college costs, recent legislation provides that plan sponsors are allowed to make tax-free contributions of up to $5,250 per employee annually through 2025 toward eligible education expenses, including tuition or student loan assistance, without raising an employee’s gross taxable income.