If you’ve gotten a sense that Millennials, folks born between 1980 – 2000, seem to be a little clueless or delusional about money, you might be right!
It’s common practice for every generation to hate on the next younger generation. You should see the attitudes my fellow 65+ year old condo owners have towards the sub 35-year-old owners during our annual HOA meetings. It’s as if the younger owners don’t deserve to have the same rights as the older owners, even though the younger owners paid way more for their properties.
Given that roughly half of Financial Samurai’s readership is between the ages of 18 – 35, the proposition that Millennials don’t care about money doesn’t seem to mesh with reality. Most of you guys care a great deal, which is why you’re here. But let’s unearth the real reason why those other Millennials just don’t seem to give a damn about money, shall we?
WHY MILLENNIALS DON’T CARE ABOUT MONEY
After Personal Capital released its Retirement Planner, they anonymously analyzed the data of hundreds of thousands of users who proactively decided to test out the free tool for themselves. Each user inputs their future income expectations (raises, inheritances, windfalls) and expected expenses ($60,000 mid-life crisis car in 15 years, $250,000 in college tuition in 20 years, etc), and the Retirement Planner runs a Monte Carlo simulation with your existing linked data and new inputted data to come out with your expected retirement cashflow. Below is an example of my Retirement Planner output.
Below is the data that came out from the Retirement Planner user analysis.
Retirement Readiness By Region & Generation
- Delaware is the #1 most prepared state for retirement with the highest average amount of savings to date at $286,277.
- Connecticut is the #2 most prepared ($279,367 is the average amount saved).
- New Jersey is the #3 most prepared ($272,918 is the average amount saved).
- California falls behind with only $227,290 saved, landing in the #20 spot overall.
- East Coasters are the most interested in paying for their education goals: New Jersey, Massachusetts and New York rank as the top 3 savers for education expenses.
- Average savings for a 4-year education by New Jersey, Massachusetts and New York are $199,039, compared to California at #5 with an average of $174,684.
- Baby Boomers have an average of $554,805 saved for retirement. This is 125% more than Gen X ($246,924) and over 700% more than Millennials ($68,971).
Millennial Specific Data On Retirement Readiness
Everything we’ve read so far seems to make sense. The older East Coast is the richest region in America, while older generations have more saved up for retirement. Let’s now focus on the Millennial-specific data to see where things go askew.
- Home Purchase Spending: Millennials expect to spend just $142,274 on a home purchase compared to $686,739 inputted by Gen Xers.
- Vacation Spending: Millennials expect to spend $325,357 on vacations by retirement.
- Number Of Working Years: Millennials expect to work 15 years on average and retire (hmm)
- Retirement Savings: Millennials plan to save $445,687 after 15 years of work
- Inheritance: This is the biggest mystery of all. Continue reading to find the answer.
It’s clear Millennials are seriously divorced from reality! Sure, it’s natural to input more aspirational figures in any retirement plan, but a whole lot of people will be disappointed with such aggressive assumptions. Let’s go through the points one by one. Remember, Personal Capital has close to one million users, most of whom are college educated, and are comfortable with using technology.
Home Purchase Spending
The median home price in America is ~$220,000. Based on a $142,274 budget, it looks like Millennials are all planning on living in the Midwest (investment opportunity!). The locations of Personal Capital’s Millennial users are heavily concentrated on the large coastal cities.
You cannot buy anything in the entire San Francisco Bay Area for $142,274. Good luck getting anything reasonable for $142,274 in San Diego, LA, New York, Miami, Boston, Seattle, or Washington DC and its suburbs either.
Number Of Working Years
The average American works for ~40 years until they retire. Somehow, the average Millennial thinks they’ll be able to work for 15 years and hang up their boots. Does the average Millennial plan to start a personal finance site like Financial Samurai or something? It’s not a bad idea since you’ve seen real income profiles of financially free people who’ve done just that! Given the average Millennials’ retirement savings in this survey is only $69,000, retiring in 15 years seems unlikely.
With the median life expectancy climbing to over 80 for both men and women, it’s going to take a lot more money to support a 40+ year retirement lifestyle without work. Even with a frugal $30,000 a year for living expenses, the Millennial would need at least $1,200,000 in savings after retiring at age 37 – 49 (age the person was surveyed + 15 years), and that’s assuming zero expense inflation.
Vacation Spending
$325,357 in vacation spending just sounds insane, even if the $325,357 was spread out over a 40 year career to equal $8,133 annually. But remember, these Millennials plan to work for only 15 years and then retire. Hence, instead of spending an average $8,133 a year for 40 years on vacations, they will spend a whopping $21,690 a year on vacations during their short careers. Party on baby! Where’s that Crystal on my yacht in Ibiza?
Retirement Savings
Millennials plan to have $445,687 saved up by retirement. That’s not too shabby, especially if you have a pension or Social Security starting to kick in at 62. However, Millennials only want to work for 15 years! To save $445,687 in 15 years requires $29,712 saved up per year. It can be done, but it will take discipline. But if you’re spending $8,133 – $21,690 a year on vacations, you aren’t being very disciplined at all!
Inheritance Expectations
By now, you’re wondering what type of dope Millennials are smoking to be so far divorced from reality. Well here it is folks. The secret to everything! The average Millennial who tried out the Retirement Planner expects to inherit $1.06 million – twice as much income as from their paychecks! No wonder why they don’t care about working more than 15 years, plan to spend $21,690 a year on vacations, and only pay $142,000 for real estate. Their parents will hook them up!
Maybe they’re thinking they’ll spend $142,000 on just the remodel. And given Millennials won’t have a mortgage to pay, they can just kick back with their retirement and vacation funds until they get an extra income boost from their 401k and Social Security.
It’s all so clear to me now why Millennials emphasize “following their passion,” and “doing meaningful work,” even if they haven’t put in their dues. The data from hundreds of thousands of well-educated, technology-savvy Millennials from all over the country does not lie!
DELUSIONAL OR WISE?
Added a $1M inheritance assumption at age 50 and can now spend $20,000 a month (from $18,892) in retirement! Play around with your assumptions to see what the planner spits out.
Perhaps these Millennials aren’t delusional. I used to think hard work was the main ingredient for financial success. Now I believe hard work plus rich parents equals success!
Given the parents of Millennials have invested in the biggest bull market in history, it’s logical to conclude that Baby Boomer parents have a ton to give. $30 trillion in generational wealth transfer is estimated to pass from Baby Boomers to their Millennial children over the next several decades. That buys a lot of entitlement.
I’ve seen plenty of parents either bequeath their own properties to their adult kids or pay the downpayment on a new property for their adult children. Seven of my neighbors in Golden Gate Heights, San Francisco didn’t pay for their house thanks to their parents. I am the only donkey who decided to work 70+ hours a week while saving 50%+ of my after-tax income to buy my own place. I should have just asked my parents for the downpayment.
Let’s be honest. If you expected over a $1 million inheritance, would you bother to try so hard? I doubt it. It’s partly because I knew my parents weren’t rich that I’ve been so determined to make ends meet on my own.
What kind of inheritance expectations did you input into the Retirement Planner? How do we prevent our kids from being unmotivated, non-productive members of society if we have a significant amount of wealth to pass on? Millennials, what have you noticed about your peers when it comes to money? Have you called your parents lately?
Loading ...Updated for 2019 and beyond.
I realize this article is old, I came across it while researching money topics. I am one of the older millennials at 35 years old and most of my generation that I know don’t fit this article at all. A lot of millennials are renting in apartments that go up every year along with food, education, and child care while income stays the same. I am supposedly middle class, we make $90k per year not including taxes but it sure doesn’t feel like it. My husband and I both have college degrees and with that came student debt. I was very fortunate to be able to pay most of my education at a community college through babysitting. I also paid off my student loan in nine years. My husband was not so lucky and had a much higher cost for education and thus bigger debt by graduation. We are still paying his student loan debt. Our rent here in the midwest for two bedroom 935 sq ft apartment is now over $1200. It increases every year around $20.00. We have been trying to save for a house but that 20% down payment seems like a pipe dream.
As far as inheritance goes, we have zero expectations of that and most of my generation that I know don’t expect it either. My mother-in-law raised four kids as single mother after divorce and then her ex-husband died unexpectedly a few years later. She was living in her Dad’s house that was given to her when he died, but then had a stroke so now is in assisted care. Her medical bills basically took any of her savings she had.
My own parents have also had health issues. My Mom has had skin cancer so then later health insurance wouldn’t take her. My Dad was forced into retirement from the company he had worked for 20+ years when the bosses changed, then recession hit his 401k. He went back to work only to go into kidney failure. He was on dialysis and took two years to get kidney transplant. They both also have medical debt now.
I understand there are people who probably are able to depend on things like 1 million inheritance but I would say most can’t.
Thanks for sharing your perspective. Great job on paying your way through college and getting things squared away.
This article is BS. How many people can expect an inheritance? Also, kudos to all you hard workers. I’m 52 and I’m done with working hard. I want to chill out and relax. Wish I had an inheritance. Working sucks. Why couldn’t I be born into money? Getting older sucks too. I don’t want to live to 100. Hope I die before I get old. Rock n roll.
I chose other, because I have no problem admitting that I’m money hungry, and 1mil wouldn’t cut it….I want to be swimming in bens….
Wow, those numbers from that study are shocking, and a little sad. It goes to show that Millennials (my generation) are filled with unrealistic expectations, entitlement, or a mixture of both.
My running joke about inheritance is that I will get “absolutely nothing, divided by 4.” As you can probably guess, my parents have virtually nothing, plus I have 3 other siblings to boot.
That’s OK though, since my natural inclination is to not rely on anybody other than myself for any financial need or goal. I was shocked when my fiance offered to help me pay my student loans; I hadn’t even considered the fact that she would ever give me any money!
Because of all this, I’ve never even entered any inheritance into any retirement planning calculators I’ve used. Even if I had parents that were loaded, I would feel very uncomfortable making major financial decisions based solely on someone giving me a lot of money a long time in the future.
I’m pretty close to the middle of the millennial generation. I’m 29.
I don’t really like the word millennial. It sounds like a flower or something. Although, who thought naming a generation of people baby boomers was a great idea? lol. It seems like old people always think the younger people are little babies or flowers or something. I am not a flower. I do realize though that younger generations, including millennials really are facing some difficult financial obstacles which will likely get worse in the future. One thing though that I think people forget is that life has always been difficult. Millennials may have to pay more for healthcare, housing, and education, but we also haven’t as of yet had to fight in a world war for example or other terrible things other generations have been through.
There is great hope for the future. I believe firmly that humanity’s best days are ahead, not behind. We will face difficulties as all generations of people have, but there will be great things ahead for us as well. The line from a book comes to mind. “It was the best of times, it was the worst of times.”. I think the future holds both the best of times and the worst of times, but overall the best of times will ultimately prevail and the future will be very bright. If you think just from a physics perspective, good is more efficient than evil and so from purely that perspective, evil is unsustainable and will ultimately succumb to good. Maybe not in individuals, but on a macro scale. This is a true principle.
I also use Personal capital a lot and I love their retirement simulators. The way I have decided to try to get ahead is through something called house hacking. My plan is basically to buy multi family investment properties with small down payments by owner occupying. I have owned and lived in a 4-plex for about 2 years now. I am planning on buying another one in another year or two and living in it for a while also. I’m really just going to keep buying investment properties until it gets to the point that I obviously should buy myself a house.
For any normal person reading this, this can be a golden key to get out of the long term financial problems other people will face. Live frugally and buy multifamily investment properties with small down payments such as FHA loans.. And yes there are ways to buy more than one this way. Think for a sec. If you buy a 600k property for 3.5% down and live in it… You gain almost 100% equity yearly just from inflation. If you put that same money in stocks, you’ll get like 10% a year rather than 100%. The only other thing to do is be careful and charge less rent than you need to in order to attract fantastic tenants and always do background checks and credit checks. When I started, I had to evict some drug dealers and other criminals from the building I was living in. Don’t expect it to be 100% easy, but if you have a good strategy, it can work out very well.
Also though, I do invest in a 401k and also have a pension. I’m not against the stock market and I do invest in it, but it isn’t the only way to go.
I barely graduated high school. In fact I didn’t graduate, but I did go back later and get a GED. I haven’t been to college so I have no student loan debt and I taught myself to code. I am also married now and have a little daughter. Marriage and family life will bring you true joy. Make that your highest priority in life. I’m serious. Good things will follow if you build a family and treat them well.
Anyway, I just want you all to know that things will work out. Create a long term plan for the future for all areas of your life and then make it so. The future is bright. Things will work out. Be smart with how you use your time and energy. Be strategic and revisit your strategy regularly and make course corrections. A good strategy executed over a long time can be very powerful.
The numbers needed to retire on this website are a joke. If people really needed that much to retire the entire system would collapse in 20 years because only 5% of the population are coming close to the 401k savings needed to retire. Healthcare costs and college tuition are essentially a bubble that’s going to burst. My 401k calculator calculates that by 2045 my healthcare premium costs will be $9850 a month. They base this off an algorithm based off current healthcare premium increases in the last decade. Shits gonna hit the fan…. the best investment is in physical guns.