Will Millenials Ever Be Able To Retire?

by Dennis Miller

My oldest granddaughter (early 30’s) recently asked me that question. She and her husband have two children, a new home and are still paying off their college loans.
I can still remember when we lived from paycheck to paycheck, questioning why there was so much month left at the end of the money….
My response, “Sure, but when, and at what lifestyle, depends on many things; including decisions you make today.”
It’s easy for young people to look at retirement as something they need to address “tomorrow”; saving is put off – too many bills to pay. “Tomorrow” does come – the day of retirement reckoning is here before you know it.
Compounding is magic!

I wish the colleges required all students to take a course called, “The magic of compounding”. Investor.gov provides a great Compound Interest Calculator. I used this tool for all data calculations, assuming a 4% compounded rate of return.
Let’s start with the (fictitious) Smith family, both age 30, jointly earning $50,000/year. They commit to saving a modest $100/month, certainly not an outrageous sum.
The Smith’s save for 20 years ($24,000 in total), and then stop saving at age 50, leaving the money invested.
The Jones family decides to wait until they are 50 to begin saving. They save $200/month, also for 20 years ($48,000 in total), until they are age 70.
When both couples reach age 70, which family has the most money? Believe it or not – the Smith Family has $78,385, while the Jones Family has $71,467. The Smith family not only kept up with the Jones’, they surpassed them by almost 10%, while saving only half as much money.
What happens if the Smith family chooses to save $100/month for the entire 40 years? At age 70 they would have $114,031. By saving the same amount, $24,000, but sacrificing and starting young, they would have almost 60% more. Who says compounding isn’t magic?
Can Millenials realistically save?
I was raised as an only child. I was almost 60 when I was shocked to learn I had two younger half-sisters. The reunion was like something you would see on an Oprah Winfrey show, hugs, tears and instant love. One of my great joys in life is being “Uncle Dennis”, proudly watching my young nieces and nephews grow up.
My nephew, James is a school teacher, in his late 30’s, married with three young children. He reads our newsletter and started asking about investments. How is he managing to accumulate investment capital with a new home and three young children?
I asked if he would do an interview. He was reluctant at first, saying that he and his wife are really just middle-class folks and they certainly are not rich by any standards.
I explained that my goal is to help educate, and encourage his generation to understand and look at the big picture rather than just put off the “savings problem” for another 20 years. He agreed to help.
DENNIS: James, on behalf of our readers, I want to thank you for your time. My year end article is focused on mentoring, and hearing from someone who is “walking the walk” is terrific.
A school teacher in rural PA does not earn big bucks. How did you get started?
JAMES: Unc, thanks for inviting me. My background is really pretty simple.
I was fortunate to graduate without any student loans. I worked a lot during college and lived frugally because I wanted to graduate debt free. I didn’t graduate with any confidence that I’d be able to save enough money to live comfortably. With a bachelor’s degree in secondary education and a starting salary of $32,500, I was aiming more towards good healthcare and a good pension, not just yearly earnings.
My fiancée was in her senior year. An added bonus of committing to a relationship early was that I wasn’t spending every evening out at a bar like many young people. In small towns, bars are often the only venues where single people have a chance to meet. Bar hopping isn’t cheap. I dedicated that year to saving, accumulating over $15,000.
I enjoyed the challenge, saving hard and living on a self-induced shoestring budget during the one year of my life when I could fully get away with it. My biggest expense was the engagement ring.
Marrying and having children are ultimate blessings, but with them comes the compromise of inconveniencing your family in the short-term for long-term security. Being single brought no such tradeoffs.
Many young people today plunge into immediate debt, buying everything a middle-aged, upper-class family wants as soon as they enter the real world. I was determined not to get married burdened with debts that would take years to pay off.
DENNIS: I’ve seen cases where newlyweds spend the money they saved up to that point; however, you and Stephanie seem to be continuing to minimize your debts and accumulate wealth. How have you done that?
JAMES: Excluding her from our financial history would be like trying to tell a story with every other page missing. We built a foundation prior to our engagement by ensuring we were of a similar mindset, not only with children, our faith, where we wanted to live but also our financial outlook as well. I’ve seen marriages ruined when one spouse values saving but the other is spendthrift. It is impossible to foster long-lasting trust when one half of a couple is spending as fast, or faster than their combined earnings.
If both spouses are not on the same page, I’d recommend some serious discussion because it will eventually boil into a big marital problem.
You might find it interesting to know that Stephanie maxed her 401k contributions immediately when she started working. I didn’t begin until ten years later. Like the example you used earlier, I doubt I will ever catch up to what she has saved. Compounding is magic!
DENNIS: Let’s talk about wealth accumulation. I know you have done some things above and beyond your jobs. What have you done?
JAMES: This may sound simple, but I believed that there are some easy principles to follow. We discussed being dedicated savers; it is what you do from there that really matters.
I don’t believe most people can accumulate wealth working 40 hours a week, you have to do more. Also, there is a HUGE difference between appreciating and depreciating assets.
Cars are a KILLER. They are great examples of depreciating assets because they lose a lot of value as soon as you drive them off the lot. We decided that reasonably priced, good used cars would cost far less; particularly if you drive them for several years.
We have some money in the market, and have done OK; however, the time commitment to stay on top of things is burdensome.
We bought some rental property. I quickly learned that tenants have no problem trashing YOUR property and living 90 days rent free before we can evict them.
After renovating a tenant-trashed property, we realized we could sell it and make more than we would renting it for a few years. Our second rental up for sale; we can make more money flipping the houses than renting them. Finding the right property, fixing it up and reselling it at a profit is nice appreciation and something our schedule allows us to do.
The adage of “you have to have money to make money” is absolutely true. Finances are like a snowball rolling downhill, and the larger your snowball (equity/savings), the faster it is going to roll, and the more momentum (future earnings) you will gain from it. But without an early start and strong foundation, people don’t have the savings to allow them these opportunities.
DENNIS: How tough is it to see your friends living in fancy houses and driving new cars?
JAMES: We have a nice home, one that we are proud of. We have done a lot to fix it up and add value. Sure, we have friends who appear to have much more, but in some cases, it is the illusion of wealth.
We have friends who are the model of hard work, sometimes 2-3 jobs; but their extravagant lifestyle has them mired in debt.
A good friend, 10 years my senior, just built his dream home for his family. They have a swimming pool, huge patio and a pool house to boot! They have less equity than my wife and I had 9 years ago when we bought our home. They are only now starting a mortgage in their mid-40’s, while my wife and I are finishing ours in our 30’s. They will both have to work well into their early 70’s, if not longer.
A common denominator I find with people who chain themselves into these situations is that they focus only on monthly expenses, rather than the overall picture. As long as their expenses are not exceeding their monthly income, they convince themselves they are fine. But in reality, they are on a financial treadmill making no progress.
DENNIS: One final question. James, I had a “financial epiphany” when I was your age. I realized that when you pay something off, it’s not a signal to buy something else; instead pay off another debt. That’s how you get off the treadmill. I felt like, “I was racing to beat the heart attack!”
Fortunately, we had a great economy, and I was moving into my peak earning years. Today it might be a lot tougher.
What advice would you give our readers who may be in the situation you outlined?
JAMES: I feel that many people approaching 40 stop to come up for air and assess things. If you are digging yourself in a hole, stop digging and build a plan to get out of the hole.
I speak from experience, knowing we will have our home paid for shortly. We sleep better at night knowing, if we just keep doing what we are doing, Stephanie and I can educate our children and retire with a comfortable lifestyle.
Unc, there is a good chance that a lot of people my age will be forced to work into their late-70’s or more, largely because they failed to save early, and tried to live beyond their means right out of the gate.
What we have done is not all that spectacular, but it floors me how many people my age fail to do so. Pay your debts first each month, save some money, and then learn to live on the rest. It’s not hopeless if you’ve gotten a late start, but you have to start saving now!
DENNIS: Thank you again!
JAMES: My pleasure.
Dennis here…
There you have it, proof that Millenials can enjoy life, and retire comfortably. As always, it’s a matter of choices. A quick summary:

• Focus on living below your means
• Buy appreciating assets and minimize depreciating assets
• Compounding is magic, start as early as you can
• You will never get rich working 40 hours a week
• Both spouses must work together toward their common goal
• It’s NEVER too late to start!

The formula works for those who work hard to achieve their goals. Making and keeping some New Year’s Resolution’s might be a giant first step.
And Finally…
“If you always protect your offspring in a cocoon they will never learn how to fly…” 
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Until next time…
Dennis
www.MillerOnTheMoney.com