In early 2014, Yahoo Finance profiled millennial Jessica Michaels – a 28 year old with a six-figure salary and a retirement savings balance of zero.
Jessica’s failure to fund her retirement was not the consequence of gross fiscal irresponsibility, but rather, the result of too many financial demands competing for her limited, albeit higher than average resources.
Prior to her years as a six-figure salary earner, Jessica turned to credit cards to finance her basic needs when income fell short, racking up a balance of $10,000. That consumer debt paired with her $150,000 student loan and her monthly rent payment left Jessica with just twenty five percent of her paycheck to cover requisite living expenses – and nothing for her future self.
Jessica’s struggle to save is not unique. In fact, with a high paying, full time job, Jessica is one of the “lucky ones”.
Fallout from the recession has delayed the start of full-fledged careers for many millennials. As of December 2014, the unemployment rate for 18- to 34- year olds was 7.9 percent, compared with 5.6 percent for the economy as a whole.
According to a study by Joseph G. Altonji at Yale University, graduating into a high unemployment economy translates into a roughly 1.8 percent earnings loss per year over the span of a decade.
And for graduates in fields that pay less than average, income losses can be as much as 50 percent larger than average.
These bleak employment prospects paired with an average student debt load over $35,000, means many millennials are deferring their limited financial resources to debt payments in lieu of savings.
What Today’s Reality Means for Millennial Retirement
A 2015 study from NerdWallet projects that Gen Y’s unique challenges of un- and under-employment, record student debt loads and rising living costs will delay the average age of millennial retirement by a decade, to the age of 75.
Rising healthcare costs, disappearing pensions and an unsustainable system of Social Security only serve to compound the uncertainty of the future retirement landscape.
Even from forty years away, today’s young professionals have reason to fear retirement security, and with numbers like these, it’s easy to wonder if the prospect of millennial retirement will remain a reality.
The Silver Lining for Millennial Retirement
Despite daunting projections and certain challenges however, millennials have a powerful resource (beyond time) working in their favor – technology.
Innovations in financial technology, or FinTech, have lowered the barrier to entry for the average investor, making increased savings, automatic retirement contributions and instant investment diversification more simple and accessible than ever.
Just as mobile technologies can revolutionize how consumers mange their finances, innovations in FinTech can change how consumers manage themselves.
According to a study by Yuri Levine and Shlomo Bernartzi of UCLA, those who used a mobile app to track their finances saw spending go down an average of 15.7 percent.
For a household making $50,000 a year, a 15.7 decrease in spending could mean an additional $150,000 plus in savings over the course of a 20-year time frame.
In addition to the accountability mobile technology provides, ease of use is another factor working in millennials’ favor. Just a few clicks can execute a trade or add funds on low cost mobile investing platforms.
Roboadvisors like Personal Capital and Betterment emerging from the FinTech boom can provide investors with a solid, diversified investment strategy without time consuming interpretations of prospectuses or daunting assessments of asset allocation standing in the way.
These simplified investing platforms are not only more physically accessible through FinTech, they’re more fiscally accessible too, due to lower costs and arguably comparable, if not better, performance.
Financial technologies promote better financial habits and facilitate access to essential wealth building tools.
Paired with the power of time, FinTech may be powerful enough to combat the effects of crippling student loan debt, weak employment prospects, and long deferred savings to rescue millennials from their own millennial retirement crisis.
How Millennials Can Use FinTech In Their Favor
Use online platforms to refinance your student loans
If you’re making good money but missing out on nearly all of your take home pay by the time you pay your monthly student loan bill, consider refinancing.
You can get a quote from online lenders like SoFi in less than an hour. According to SoFi’s home page, members save an average of $18,936 by refinancing. Those additional funds can go a long way in ramping up retirement savings efforts.
If your income isn’t high enough to qualify for a fabulous refinancing deal, consider your other options – deferment, income-based repayment, etc.
The objective is to find a debt repayment plan that not only gives you enough flexibility to live comfortably and save comfortably.
Monitor your financial profile using financial applications
Step one in any financial plan is taking financial inventory – that is, calculating your net worth.
Before you can plot out how you’re going to move in the direction of your goals you have to know where you currently stand.
Use an app like Personal Capital to help. The platform allows you to sync up all your accounts, from credit cards to IRAs, so that you can see your full financial profile in one place.
In addition to the clear financial snapshot Personal Capital provides, it also offers free financial tracking software so you can monitor your financial progress and present at any given time.
Remember how much mobile app users tracking their finances saw spending go down? An average of 15.7 percent. How much would 15.7 percent reduction in your spending free up for your future needs?
Finally, the Personal Capital platform also offers a few extra freebies that can help you maintain accountability to your future self.
The investment check up tool for example projects your portfolio value and your monthly retirement spending ability based on your current savings and investment strategy, letting you know whether you’re on track in meeting your desired retirement income goals, or not.
Even from 40 years out, these projections of your future financial state can be pretty motivating, inspiring increased savings and proactive investment strategy in the present.
You can open a free Personal Capital account here!
Use FinTech to get invested
If you’ don’t have any investments beyond your employer sponsored 401k plan or you’ve been procrastinating the necessary investment in your financial future because you feel you don’t have the means or the knowledge, consider this your official kick in the pants.
Developments in FinTech have removed your excuses. Online platforms like Betterment make investing simple, straightforward and low cost.
I’m talking seriously simple here. You start by filling in this sentence, “I am ___ years old and ____ (not retired). My annual income is $____.”
Based on your answers the platform suggests a number of goals and financial targets, then provides concrete strategies and tools for achieving them. It’s a no brainer.
If student loans and the post-recession job market are the definitive millennial retirement road blocks, then the evolution of FinTech, paired with time, is the great millennial advantage.
Don’t miss out by failing to make the most of it!