A perfect storm of crushing student loan debt and a financial naiveté has led to an alarming situation among millennials, who face a long retirement with limited means to fund it. As of June 2016, the average debt owed by a new college graduate was $37,172, or over $300 per month for the next 10 years. That means, even the most responsible graduate making regularly scheduled payments will be at least 32-years old before she or he is student debt free. In addition to the student loan payment, a young adult most likely will have a car loan, a cell phone, utilities, food, gas, clothes and health insurance. No wonder many millennials are living with their parents! According to a recent study by Junior Achievement and PwC US, 24 percent of millennials say they expect their loans will ultimately be forgiven. Even those that intend to repay their loans appear to be getting challenging advice. A recent New York Times piece, which noted that between 25 and 33 percent of student borrowers are late paying their very first loan bill, suggested that a reasonable level of debt is any amount that is the same or less than the student’s yearly salary. That sounds like a statistic for underwriting mortgages. But, just as millennials have an unprecedented debt load, they also have plenty of innovative ways to control it. On-line budgeting tools make tracking payments simple. With automatic account transfers, it is nearly impossible to miss a bill payment. And not even debt-ridden millennials, who are projected to live more than 100 years, need to neglect their retirement accounts. Thanks to the magic of compound interest, a simple automatic transfer into a Roth IRA can yield impressive results, if they start early enough. That money grows and, because they’ve already paid taxes on it, they can withdraw without penalty when they turn 59 1/2, if they’ve owned the account at least… | Read More »
Financial Planning for Millennials
A Millennial Conundrum and the Case of the Disappearing Inheritance
The rising tides of exponentially increasing health care costs and a longer life span have led to a relatively new wrinkle in retirement planning, the disappearing inheritance. In the past few years, the primary goal of most retirees, which had centered on legacy planning, has become survival and making sure their money lasts their whole lives. Happily, their lives are growing longer; the average lifespan of an American female is now 81.2 years, and for males it’s 76.4 years, a record high according to a new report on mortality by the Centers for Disease Control and Prevention. Unhappily, the cost of care to maintain that life span is growing at an equally swift pace. Healthcare costs run higher in the United States than in any other developed country in the world, according to Consumer Reports. Add to that statistic the threat of an increasing cost of living, and elderly investors have their hands full just keeping their heads above water. For millennials, who already face a potential loss of Social Security and work related benefits (Does anyone get a pension anymore?), this is another indication that the health of their own ideal retirement rests squarely on their shoulders. Years ago, as Americans reached retirement age, many middle class Americans could count on some form of inheritance from their parents as a bonus to their own pension and life savings. Two of these three vehicles are becoming obsolete.. Fortunately, Millennials are saving earlier and more aggressively than any age group before them, according to a survey from the nonprofit Transamerica Center for Retirement Studies. Among Millennials whose companies offer an employer sponsored retirement plan like a 401(k), 71% are participating in the plan, and they’re investing a healthy median 8% of their annual salary, the survey of more than 4,000 workers found. What many 401(k) investors don’t realize is that they not only control the amount they invest in their company… | Read More »