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Why Do Younger Professionals Struggle to Save for Retirement?

A survey shows 62 percent of Americans said they need to catch up on their retirement savings. The results also reveal 66 percent of millennials are still behind their retirement savings. Only 30 percent of them said they have started saving or investing early.

Several factors hinder younger professionals (ages 23 to 28) to save up for their golden years. What’s surprising about this is that debt isn’t the main reason but something else.

Housing Costs: A Major Hindrance

According to the survey, 37 percent of millennials said housing costs are the top reason they are struggling to save up for retirement. They spend most of their income on housing partly due to the rising rental prices.

Millennial parents are the most affected. One in five parents spends 50 to 59 percent of their income on housing, and eight percent said they’re paying 60 to 74 percent.

Additionally, supporting family members financially is another reason 33 percent of millennials can’t set aside money for their retirement. Meanwhile, 26 percent said they can’t save up for retirement because of inadequate income.

In another survey, 46 percent of affluent millennials aren’t saving enough, and 39 percent expect to work beyond retirement age. The majority of well-off millennials are afraid of investing due to a lack of knowledge. Those who feel more knowledgeable about investing are five times more likely to be more confident in making financial decisions.

Saving for Your Retirement Years

Financial experts recommend saving up $1 million before retirement. If you’re one of those you struggle saving up, how can you save a million dollars before you retire?

It all depends on your income and how early you start saving. You need to save between 10 percent and 15 percent of your gross salary, and it’s best to start early to make the process easier and less expensive. You may need to bring more than $61,372, which is the median household income in the country.

In case you start at age 25, you need to earn $22,764 annually with an eight percent return and save $284.55 per month. But if you start at age 40, you need to earn $83,563 annually with the same percentage of return and save $1,044.53 monthly.

These calculations, however, don’t take into account different the challenges you may experience in your lifetime, such as unemployment period or sudden illness. The amount you save may also change as your salary increases over the years.

Saving money is not easy, but these three tips may help:

Save for an emergency

Saving money for an emergency fund should be a primary goal. This saving should be easily accessible and should only be spent in the event of sudden medical bills or job loss. Once you have an emergency fund, you may start saving for other goals, such as a new car, for your child’s education, and your retirement fund.

Pay yourself first

Save a certain percentage of your income every time you receive your paycheck. You may have your bank automatically transfer a certain amount to your savings every month, so the money won’t hit your pocket. Putting bonuses, raises, and tax refunds in your savings also help you save easily.

Understand the time value of money

The earlier you start saving, the bigger fund you will have in the future. The money you put in your savings or an investment vehicle will earn interest over time. This process is called compounding interest, where interest is calculated on the initial principal, including all the interest you received from previous periods of deposits or loans.

Nobody wants to retire broke. But several factors, like housing costs and inadequate income, make it challenging to save for retirement, particularly for younger professionals who already have a family. Saving early is essential to enjoy your retirement years in comfort.