Should Young People Still Save for Retirement?

Retirement has been on my mind lately, and not in a romantic way. When I picture my retirement, I don’t necessarily think of what I’ll be doing or where I’ll be—I think of the air quality I’ll be living in and imagine that the vibes will be, generally, bad. I promise I’m not catastrophizing here; I’m just trying to be realistic about the way the world could turn out so I can prepare for the worst. The worst, in this case, would mean that there would be no retirement for my generation and other young people.

I read an article on MarketWatch that discusses how young people should wait to start saving for retirement, in some cases until middle age. The logic comes from the life-cycle model, which is an economic theory of how people consume based on their income. The theory holds that people will save more when they have higher income and borrow more when they have lower income—seems pretty simple, right? Someone who has just started working likely doesn’t have the income to start saving for anything. The usual financial advice given to young people when they start working is to begin contributing to their retirement account as soon as possible, max out their contributions and ensure they are getting their employer-matched contribution (free money!). The article states that, instead, this could do a lot of harm to young people who are just getting on their feet financially and might not be able to afford any level of retirement contributions until they are making a higher salary.

I found this to be a validating point, as I certainly couldn’t afford to start contributing to my retirement account when I was first eligible. Instead, I prioritized building up my emergency savings until I could move out on my own and made decisions based on the kind of life I wanted to have in the present. (Trying fancy artisan cheeses was definitely a higher priority than retirement during this time!)

We save for retirement because we want to maintain a certain standard of living once we are no longer working. This sounds a lot simpler before you decide to crunch the numbers, factoring inflation into your future. Not only are young people worse off financially in the current economic environment, but the latest I’ve found is that millennials now need to save between $3 million and $4 million for retirement. Yes, I laughed out loud when I read that! When I first started working at AAII, the magic number was $1 million for retirement. Six years later, a threefold increase from that number seems to be leaving a huge chunk of the point on the table: Wages have not and cannot keep up with inflation and likely never will. So if millennials are supposed to be saving three times the amount our parents thought they had to save for retirement, how on earth are we expected to keep up with that? (Seriously, do we need to get the aliens involved?)

The MarketWatch article also touches on low-income workers and Social Security, saying that Social Security should be the main source of retirement savings for them: “In essence, the more Social Security replaces of your preretirement income, the less you’ll need to save.” The only downside here is that Social Security may be significantly depleted by the time low-income millennials need to retire.

Much like a minimum wage, I think there should be a baseline salary that everyone deserves to make in order to survive. This could vary based on the cost of living in your area. If we work in order to live under capitalism, then we need to be able to actually live on what we are making from working. The baseline salary wouldn’t necessarily have to be entirely provided by the company you work for, but it could be provided from other sources that are meant to help people, like the government (in a perfect world where there’s no debt ceiling).

Trying to imagine myself with $3 million at the time I retire is harder to believe than many of the works of fiction I’ve consumed. If the cost of living continues to skyrocket with no accountability in other areas of the economy, people won’t even be thinking about retiring, they’ll be too busy trying to survive!

So where does this leave me and my retirement plans? Right where I left them: My 403(b) account slowly increasing with each paycheck contribution, me still not sure where or when I will ever retire and the peace of mind that I still have time to see if the world doesn’t end before then.