Something I’m seeing pop up lately is that Gen Y doesn’t tend to worry about saving for retirement. Savings are passé, following your bliss into the variegated sunset and working well into your 70’s is en vogue. I can’t argue against that entirely. There is research suggesting that Baby Boomers aren’t retiring like previous generations. Many begin second careers late in life and have a “work till I die” attitude. Some realize their dreams later and want a second shot at whatever star they thought had faded. Gen Y, seeing this example, has decided they won’t let that happen, they want to find ways to be happy now, so that they don’t sit around and dream for when days will be better.
That’s all fine and good, but I wonder, why would it follow that it’s smart to eschew a savings plan? It doesn’t, that’s why. Does squirreling away 10-12% of your income cramp your lifestyle all that much? Do you have a full comprehension of what Albert Einstein is rumored to have called “the miracle of compounding interest”? Yes, even though this angry guy may rail against the statement’s validity and properly pegs compounding interest as a “social construct”…the fact of the matter is, like other “social constructs” such as reading, writing, and ‘rithmetic, it’s useful, it’s here to stay, and it’s here to help you grow your money – and that’s a good thing.
Seriously. I’ve said it before and I’ll say it again: Save your damn money. It’s not hard to do. Small amounts add up over time and can be used for something other than retirement. Heck, let’s not even call it “retirement savings,” instead, opt for a more fun, kitschy name like The FU Fund, via BUST magazine. This was an idea I caught off one of my favorite angry-ranting-about-personal-finance blogs: Escape Brooklyn. For anyone who is simply fed up with their job, goldfish, mailman…whatever. An FU Fund is the ultimate rainy day stash. It will give you the hutspa to day “I’m not gonna take it anymore” AC/DC style and ride off into that sunset.
And if you are so gloriously happy you can’t imagine what you’d do with your stockpile of money – then consider saving it for a cause you care about. The benefit of doling it out 50 years from now is that you maintain control over it for your lifetime, can use it if you need it, and can then direct its use more wisely in the future.
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Amen and hallelujah! I am just getting to a point where I can put 10% away - up until now though, I did what I could. I put $25 per paycheck ($50 per month) into a higher-yield savings account.
Things are a little different for our generation. We’ve known since we came out of middle school that Social Security wasn’t going to be there for us. Coming out of college, we realized that 401Ks were no longer the way to go. We want more, faster.
My savings account is for retirement, but I call it my “financial freedom” account. I will use it to invest in projects that will throw off cash flow, not just small percent dividends.
This is our reality. Get savvy now or retire never.
Hey there Holly - doesn’t it feel good to save? You’re right in that our generation doesn’t expect much from Social Security - but what scares me is that the government is still trying to make it work. Gen Y is facing footing the bill for a lot more people than themselves, much more inefficiently through an already failing program. As for 401K’s, I’d have to disagree, I think they are still one of the best savings tools around!
Milena,
It’s particulary important for people to save as much as they can as early as they can, because in addition to compound interest, there’s the kid thing. Those’ll suck you dry like nothing else.
Also, maybe as a follow-up you can suggest specific ways to save. Not where to cut money, but where to put it. I’m already set in that area as I put a good % away, but many people don’t want to save if they get .75% interest in a local bank’s savings account.
Holly,
401(k)s are actually great. Think of all investment opportunities as auto manufacturers: GM, Toyta, Ford, etc. There’s IRA, 401(k), CD, etc.
Now get specific: you get a 401(k) and you can invest in anything you want, just as you can get a Camry or Tundra–two very different things.
In a 401(k) you should have money in varying levels of stocks, bonds, precious metals, and cash. If you’re young, it should be stock-heavy. The problem many people had between the dotcom bust and fallout from 9/11 is that people were keeping their portfolios too heavily weighted in stocks and not smartly diversified. Saying all 401(k)s are bad is just like saying all cars are bad just because instead of driving a Cadillac you’re driving a Fiat.
I just maxed out my IRA at the age of 21, so you can guess I believe in saving - http://williamgcash.blogspot.com/2008/04/2007s-ira-deadline-is-approaching-fast.html
It scares me that our generation doesn’t want to put anything away for the future, though. We were in class the other day, and the guest speaker was trying to teach us about budgeting for your lifestyle and he was using what ever number the class would agree on for certain lines, ex. “How much do y’all expect to pay in rent once you graduate?” “$700? Do I hear any complaints? Okay, I’ll put that down” When he got to the part about how much we would put away for Investing/Saving - the class agreed on $0. I’m not kidding. This is a class of 20 and 21 year olds at the University of Texas, and none of them plan to save or invest? Personally, I was surprised/shocked!
Michael Lombardi -
Thanks for your comment. I’ve heard conflicting opinions about kids though, I’ve heard that they can cost surprisingly little, i.e., they don’t eat much, just need a few outfits…although this could be propaganda from my family to expand a brood. What do you think?
William G. Peregoy, II -
Congrats on maxing your IRA contribution for the year! Must be a good feeling. That is rather shocking that $0 was the lucky number…perhaps they’ve all got trust funds? : )
Milena,
Just read last week that the new numbers are out. It will cost the typical middle-income family roughly $275k to support a child through age 18. The more you make, the more it costs.
Think of it as an extra $275k mortgage - payable over 19 (including pregnancy) years instead of the traditional 30.
Yeah, I’d say the family is making up stories. Unless they’re going to do your laundry every night so you reuse the same outfit.