The significant student loan debt carried by many Millennials today is preventing adequate retirement savings among the generation, according to a recent study by BMO Wealth Management.
The survey found that only 10% of Millennials consider retirement planning a current priority. Meanwhile, 37% said retirement is too far away to address as a main goal, particularly in light of current financial responsibilities. Twenty-two percent of respondents said they would rather pay off their accumulated debts first before starting to save for retirement.
Meanwhile, 25% said they are concerned whether or not they will ever be able to afford to retire. As for saving for major purchases, such as a first home, young people are taking diverse approaches, the research found. Most (42%) save for these potential expenses via a savings account. Thirteen percent prefer individual retirement accounts (IRAs) and 401(k) accounts. A smaller percentage (6%) invest in Roth IRAs, suggesting many Millennials may be unaware of the diverse benefits associated with saving through these vehicles.
“IRAs, Roth IRAs and 401(k)s are some of the best plans for helping millennials save for major purchases, such as buying a home or saving for retirement,” said Stephen Williams, senior vice president of wealth planning, BMO Wealth Management. “Contributions to these accounts grow tax-free or tax-deferred and savings can significantly accumulate over time. I cannot stress enough to Millennials the value of utilizing these accounts for retirement planning and also for other means.”
Moreover, the survey found that both Millennial men (37%) and women (29%) are concerned about their lack of financial literacy.
When asked to name their highest financial priority, respondents cited paying down accumulated debt (25%), finding meaningful/better paying work (17%), and purchasing or upgrading to a new home (15%).
“As Millennials’ incomes grow, financial planning and literacy will become even more important in order for them to achieve their financial goals,” Williams concluded. “It is imperative for Millennials to engage advisers as they start to map out their financial plans, in order to maximize their financial potential in a way that suits their current lifestyle and helps accomplish their aspirations.”