Summary
Gen Z and millennials need between $3 million and $5 million in retirement savings due to inflation.
Facts
- Gen Z and millennials need $3 million to $5 million for a comfortable retirement due to inflation.
- More than 7 in 10 investors believe that $3 million to $5 million is the ideal retirement savings target.
- The rise in inflation has led to a three- to five-fold increase in the recommended retirement savings target.
- Managing towards an unknown future, including uncertain prices and lifespan, adds to retirement anxiety.
- Bloomberg customers, who have high incomes and careers in finance, were surveyed for the study.
- The US government debt will increase by $5.2 billion per day, adding to the need for increased savings for retirement.
Gen Z and millennials need to save between $3 million and $5 million due to inflation, which has led to a three- to five-fold increase in the recommended retirement savings target, according to a Bloomberg study.
Canadian millennials, especially homeowners, are expected to face significant economic damage and high interest costs in the coming months due to rising interest rates, according to a report by RBC, leaving them vulnerable to job losses and straining their high levels of debt.
Individuals between the ages of 40 and 59, known as Gen X and younger baby boomers, experience the most stress and struggle with managing the concept of longevity, making it crucial for them to start planning for their future and seek guidance from financial advisors, according to research from Transamerica and the Massachusetts Institute of Technology AgeLab.
Canadian Millennials are struggling financially compared to previous generations, with higher levels of debt, stagnant incomes, and less disposable income, which could amplify the impact of an economic downturn, while Boomers are faring much better.
Mortgage rates above 7% are worsening the affordability crisis, limiting younger buyers' ability to purchase homes and causing millennials to lag behind previous generations in homeownership, as rising rates and prices erode buying power.
The US experienced a significant decline in wealth last year, but millennials saw their net worth rise due to their higher investment in real estate, debunking the myth that they are financially struggling.
The average price of cars in America has risen recently, causing financial strain for Gen Z and millennials, especially due to rising interest rates and high levels of auto loan delinquency.
The aging population, particularly the baby boomer generation, is fueling the demand for housing, creating a shortage and making it more difficult for younger generations, like millennials, to buy homes.
Gen Z is more optimistic about homeownership than millennials, with a lower percentage believing it will be impossible in their lifetime, and while both generations face barriers to homeownership such as high home costs and student loan debt, Gen Z is doing a better job of saving and has a slightly higher rate of homeownership compared to millennials and Gen X at their age.
High home prices and interest rates have created challenges for young Americans, but the boomer generation has benefited from high home prices and bond yields, making them less affected by the economic cons.
A recent report suggests that many Gen Xers in the US are not saving enough for retirement, with only 14% having a defined benefit pension plan and the median retirement savings for Gen X households being just $40,000. Additionally, there are stark racial and ethnic differences in savings accumulation, with Black and Hispanic workers having the lowest savings.
The increase in cash stashed in high-yield savings accounts and other interest-earning products could result in retirees being pushed into higher tax brackets, increased taxation of Social Security, and surcharges on Medicare premiums.
Millennials who purchased homes and settled in the suburbs during the pandemic will face a financial burden as they will not be eligible for student loan relief, potentially leading to an increase in household bankruptcies, according to former Fed economist Danielle DiMartino Booth.
Older millennials, specifically those aged 35 to 44, are the least likely to feel financially secure, with 80% reporting high levels of financial stress due to factors like inflation, challenging economic circumstances, student debt, childcare bills, and soaring housing prices.
Millennials are being hit harder by elevated mortgage rates than other generations, as they were not able to take advantage of historically low borrowing rates during the pandemic, leading to increased mortgage debt and difficulty in entering the housing market.
Many millennials are nostalgic for the financial freedom they had while working minimum wage jobs in the early 2010s, and a 32-year-old photographer explains that his current financial stress is due to increased credit card and student loan debt, despite making more money and living in a double-income household.
The notion of a massive wealth transfer from the baby boomer generation to younger generations is unlikely to become a reality due to the costs of long-term care, high healthcare expenses, and the concentration of wealth among a small number of individuals.
A new analysis from Bank of America shows that Gen Zers and millennials are increasingly taking on gig work to make ends meet, but their credit and debit spending growth is slower than that of baby boomers, indicating that young adults are facing financial constraints and have little discretionary income. This trend is attributed to wage slowdown and rising living costs for younger generations.
Millennials may need to let go of their resentment towards baby boomers in the housing market, as current conditions resemble the 1980s more than the mid-2000s, with factors such as high inflation, rising interest rates, and a surge of millennial buyers contributing to a potential housing recession.
The current housing market is resembling that of the 1980s, with high inflation, rising interest rates, and a boom of homebuyers coming of age, potentially leading to a similar "housing recession" where home sales stay low and prices stagnate; however, demographic changes, such as millennials reaching prime homebuying age, could support home prices despite rising mortgage rates.
Baby boomers, with their healthy finances and high spending, are contributing to stubbornly high inflation in the UK, posing a challenge to Chancellor Rishi Sunak's target of halving inflation this year. Boomers, armed with final-salary pensions and benefited by rising interest rates on savings, are defying economic gloom and keeping the economy afloat in areas such as housing, holidays, golf, and recreation and culture.
The graying Baby Boomer generation is now buying more homes than Millennials due to their accumulated wealth and ability to pay cash, leading to a shift in the housing market.
Bank of America is recommending investors to invest in stocks that cater to baby boomers, who are benefiting from high interest rates and have more disposable income, while avoiding stocks that rely on cash-strapped millennials who are burdened with debts and high expenses. Sectors like healthcare, entertainment, and home improvement are likely to benefit from this trend, while clothing retailers may face headwinds.