Most Americans need at least $1.5 million to retire. With compound interest, a millennial investing weekly into a Roth IRA will hit that target. The key? Start now.
But how?
Gen Zers (age 9–24) and Millennials (age 24–39) face a different economy—and financial outlook—than previous generations. Student loans, a real estate housing crisis, stagnant wages, and inflation feed a growing reluctance (slash inability) to invest.
Some reports push the retirement age to 75.
From this weary landscape, two generations of Americans find themselves increasingly disillusioned with the American Dream.
It’s no wonder so many young adults struggle to break into financial markets: 75% of millennials and Gen Zers shy away from standard stock market investments (Forbes). But this despondency with the stock market—due in part to a lack of financial literacy— can be mitigated with an investment strategy designed specifically for millennials and Gen Z.
Millennial Economic Outlook
Because of climbing inflation and the cost of living, many millennials live paycheck to paycheck. When half of your income goes to rent, and the other half goes to paying bills and debt, it’s hard to think about the future.
However, there is an opportunity cost to failing to invest: even small amounts invested weekly could turn into hundreds of thousands of dollars over a few decades.
What millennials and Gen Zers do have in spades is one very important investment tool:
Time.
Compound interest does wonderful things over the long term. It’s a crucial component of millennial investing. Beyond the actual financial landscape, it’s important to recognize what navigating it feels like to millennials—the non-financial factors—and what they can do to best manage the challenges with a sound investing strategy.
Schedule a Consultation
Our Tactical Investing Strategy Gives You a Better Wealth Management Plan than “Just Ride it Out”. We aim to reduce your exposure to market drops and preserve your wealth with an investment strategy that has largely avoided the last 11 bear markets. See how we can help protect your financial future with a free portfolio review call.
Debt
American youth have accrued hundreds of thousands of dollars in student loans. Millennials have 300% more student debt than their parents. The average federal student loan debt is $37,338 per borrower, while the average private loan is $54,921.
45 million people rely on student loans, and 92% of them have federal student loan debt still to repay.
Other forms of debt include
- credit card
- auto loan payments
- mortgages
Rising Real Estate Investing prices
Couple the dismal debt outlook with a high-interest rate environment, and the dream of owning a home, investing in real estate, or other assets seems impossible for many young Americans. In truth, millennials are half as likely to own a home as someone their age 50 years ago—especially considering all the financial costs associated with home ownership (mortgage rates being just one of them). Today, only 32.2% own their home compared to 62% of Gen-X and 66% of Baby Boomers.
Overall stats on home pricing in the United States show a seismic increase from 2020, with the current median household price sitting at $440,000, up from $329,000 during the first quarter of 2020.
Millennials earn $47,000 on average while mortgage increases skyrocket. For Baby Boomers forty years ago, a simple 2-bedroom home was roughly $17,000. By the year 2000, that had reached $119,000.
That astronomical increase in rent and mortgage over the last forty years without a significant wage increase to keep up with the cost of living, has left many feeling priced out of buying a home. Add in fluctuating interest rates, and that leaves many questioning how low they need to fall before it makes economic sense to invest in property.
Looking Ahead: Long-term Investing for Retirement
The adage “life moves faster than you think” most certainly applies to all generations, but particularly to those who have twenty or thirty years to prepare for retirement, namely, the millennial and Gen-Z generations. Seeking investment and financial advice is crucial for long-term planning and making informed decisions.
By 2025, 75% of the workforce will be millennials.
With the American retirement age sitting at around 64, millennials need to start planning for retirement now.
A solid plan outside your state pension is a wise step to get ready for retirement. Outside of a superannuation payment by your employer, increasing your investment options as you obtain a little more disposable income is a good idea.
In short: it’s important for millennial and Gen Z investors to have multiple potential revenue streams.
Types of Retirement Accounts for Millennials Investing Today
If investing in a home is out of reach, there are different investment opportunities that put you on good footing; like your retirement account. You have options here. Below are three of the most common retirement accounts that millennials consider:
Traditional IRAs
A traditional Individual Retirement Account or “IRA” is an account that offers tax-free growth (tax deferred) to save for retirement. The money you contribute to your IRA may be fully or partially deductible Generally, amounts in your IRA (including earnings and gains) are not taxed until distributed decades later.
Traditional IRAs are an excellent option for those who intend to ‘fire and forget’ their Retirement Accounts until retirement comes. Traditional IRAs do not incur any taxation until after withdrawals begin.
Roth IRAs
A Roth IRA is similar to a traditional IRA with one big difference: With a Roth IRA, you pay taxes on the money that goes into the account and any future withdrawals are tax-exempt. This gives you room to plan for your retirement without getting dinged on any Roth IRA withdrawals. Roth IRAs also don’t have any age restrictions, which means they are great investing options for millennials and Gen-Zers.
Parents: You can open a Roth IRA for your child, setting them on the path to financial freedom in the future. Roth IRAs are exempt from Required Minimum Disbursements, or RMDs.
401k
A program that Congress designed to encourage Americans to save for their retirement, the 401k is an elective fund that employees can contribute to. Known as “elective salary deferrals,” your employer can also contribute to these accounts (matched by a percentage). Your 401k account is also tax-free until withdrawal, wherein it’s taxable, unlike a Roth IRA.
Why Roth IRAs Make the Most Sense for Millennials & Gen-Z
Unlike traditional IRAs or 401ks, Roth IRAs save millennials money in the long run because withdrawals don’t incur taxes when you retire.
Yes, you pay tax on the amount you put into the account. But as the Roth IRA account grows, the taxable income when you retire decreases. Using a Roth IRA as a savings account (and adding money into it each month) is a fantastic way to start saving early.
Save money in the long run and make your immediate disposable income go further.
Types of Investment Options for Millennials
The traditional stock market approach is certainly an option, but its volatility, risk, and steep learning curve sometimes proves too much for many millennials.
Stock market
Stocks are monetary investments in companies, generally as a percentage. Older generations invested heavily in stocks—as high as 55% of total investments. But for millennials, stocks aren’t as hot as they once were.. In 2022, only 25% of millennials held their assets in stocks.
Index Funds
An index fund is a group of stock companies (Vanguard, Dow Jones, Nasdaq) based on predictions of how well a specific set of stocks will do. Index funds are typically associated with lower expenses upfront with a potential for higher earnings. Theyt are based on predictions rather than a more immediate picture of market value.
ETFs
An ETF, or exchange-traded fund, is a large fund pooled with multiple types of assets, rather than a singular investment like cash in a stock (for example: bonds, equities, commodities, cryptocurrency). ETFs encompass larger, high-figure amounts as a result. There are different specialty types of ETF, like broadly diversified emerging market (EM) ETFs, country-specific ETFs, and thematic ETFs like renewable energy and synthetic.
Mutual Funds
Mutual funds are an excellent option for those seeking to get into the stock investment game with little overhead. These funds are professionally-managed (for a small fee), meaning that you’re leaving your investment in the hands of someone more experienced with how these markets operate. Because of this, these are generally seen as lower-risk options for individual investors.
Meet with a Wealth Manager to Discuss Millennial Investment Opportunities
If you’re a millennial looking to invest, start by meeting with a wealth manager.
Wealth managers have years of experience helping clients maximize their returns on investments and make smarter choices with their current financial portfolio.
Wealth managers also have experience and access to predictive information about where the financial markets are heading—which affects your finances. Rather than entering the sometimes-overwhelming world of financial investments alone, learn more from the professionals at Churchill Wealth Management.
How Churchill Can Help
Churchill Management has helped clients reach their financial goals for decades. Whether you’ve come into money through inheritance, have your own small business, or are looking to branch out into the investment field for the first time, our money-managing professionals provide advice that helps you make the best decision for your future.
For the best advice on millennial investing and Gen Z investing, book your free consultation today!
FAQs
No. There is no age limit to open a Roth IRA, and you can enjoy the benefits of it as you age.
The average growth of your Roth IRA depends on how much you put into it annually. However, the average input into a Roth IRA is roughly $6,500. The average growth rate of a Roth IRA is roughly 7%.
That means that after 30 years, your Roth IRA would grow to over $600,000! The downside: you pay taxes on your withdrawal amount.
Typically, millennials are classified as being between 25 and 40 years old now.
Given the major challenges millennials face in terms of employment, housing options, income disparity and insecurity, perhaps more so than any other generation, millennials need financial advisors to help them make the best decisions with the ever-increasing volatility of their income.
No age is “too young” to start investing! Even your childhood piggy bank could be considered a form of investment. It is a good idea to learn investment principles early and begin properly investing (with a Roth IRA, ideally) when you obtain your first job.
Financial Planning Services
Churchill provides financial planning services to Clients that specifically engage Churchill for that service. The planning can include defining goals, designing a plan, assisting with implementing the plan, and evaluating and adjusting the plan over time, at the request of the client. The financial planning includes advice regarding securities investing, and may include discussions of a client’s tax, insurance, employee benefits, estate planning and other issues. Churchill, however, does not provide legal, insurance, employee benefit, estate planning, tax or accounting advice, and the client must rely on legal, insurance and accounting professionals for that advice and documentation.