The perception of retirement is changing for most Americans, who are working into their golden years — either because they need to or want to — and by the time millennials get there, retirement as we know it may be unrecognizable.
That doesn’t have to be a bad thing, as long as millennials prepare themselves with lessons in financial literacy and have enough self-control to buckle down and revisit their finances every so often. In their new book, “The Millennial Money Fix” (published by Career Press), the authors explain the challenges most people in that generation (those born between the early ‘80s and early 2000’s) face, such as crippling student debt, a lack of financial education, and ways in which they can overcome — and even get ahead. Douglas is a financial adviser and founder of Bone Fide Wealth in New York City, and Heather is his marketing manager, who graduated law school with six figures of student loan debt.
See: Millennials face a depressing conundrum: Is it worth saving $5 a month for retirement?
Not all current and near-retirees are entirely secure in retirement. Many Americans are undersaved, even if they have access to an employer-sponsored retirement plan, and others are working to make ends meet because they couldn’t save enough in their younger years. Not only does the millennial generation have to save for the lifestyle they want in retirement, but they also have to consider unexpected scenarios, such as the disappearance of Social Security, caring for aging parents and health-care costs. Financial experts suggest they get a head start, even if the idea of retiring — or what they’ll want in those later years — seems foreign.
Lessons from the book include analyzing ways to pay for education, such as private loans and work-study programs; fixed expenses, such as mortgage or rent payments and insurance premiums, versus variable expenses, such as transportation and subscription and membership dues; paying off loans in an efficient manner, and repayment plans; the basics of stocks and bonds, and asset allocations for various risk tolerance; and important documents to keep.
Douglas and Heather spoke with MarketWatch about the ways millennials can address their finances, and be ready for retirement:
MarketWatch: Along with student debt, what are the biggest problems for millennials when it comes to managing their finances?
Douglas: Two things: Having a solid foundation and being educated with basic principles, and also reconciling and understanding a budget and cash flow. That’s one avenue, and the other avenue is the labor environment. The labor environment is very different from parents’ or grandparents’ generations. You have to curate your own career now. Long gone are days where you spent 30 years at a firm, got a gold watch and a retirement party. The disruption in the labor market makes it more challenging for millennials, and translates how they’ll save for retirement, for a home. We wanted to touch on that and examine how those shifts occurred so they can understand what they’re getting into when they enter the workforce.
Heather: What you’re losing is the certainty of being able to say, I’m going to enter this field and put my head down and I am going to have a stable job and an honest career, and it’s going to be safe. That’s a lot of what millennials have lost in today’s changing labor environment. With that comes great opportunities, though, which we touch on, and how to take advantage of that. You get to commoditize your skills in your own way.
MarketWatch: How does retirement fit into financial planning for millennials — the goal that’s so far away and yet, so important?
Douglas: We are really pushing the rebranding of that word to “financial independence.” The reason we’re doing that is it’s a sexy new name for it, but it is also about the reshaping of what this is going to be for the generation, and what that means. It won’t be our grandparents’ experience of not working all of the time and playing golf — that’s my understanding of my grandparents’ retirement. Ours might involve continuing to work in some capacity. It may mean less entitlement programs and pensions. There is less certainty. We have to come to terms with the fact it will not look like it did in generations’ past.
Heather: Now more than ever, if you talk to millennials about retirement and what retirement will look like, they don’t say they can’t wait to sit on a beach and do nothing. They say, “I can’t wait to make my own decision and do what I want.” It’s that, “I want to spend time working on things I am passionate about.” So it’s somewhere between doing nothing and doing everything. The idea of financial independence is “I worked long enough in this field and I afforded myself the chance to try what I want to do and still support myself.”
MarketWatch: Millennials are lumped into one generation, but they are all at different stages of their lives — ranging from the mid-20s to the early 30s and either finishing up school, building careers, getting married or having kids. Do you ever find that there are problems addressing advice to millennials’ finances because of this, and what are the best ways to provide financial advice then to this group of people?
Douglas: The industry by its very nature is an older industry. What has made it, for lack of a better term, incongruent, in terms of advice being given as a whole, is its older advisers that aren’t understanding the financial realities or challenges the generation faces. Millennials are all in this age group of 18 to 36 years old — it’s when most stuff in your life is happening: educating yourself, getting your first job, having kids, getting married — and it happens very soon, and accelerates.
Heather: You understand the emotional toll that student loans have taken on the generation. With someone who took out six figures of student debt, an older adviser might be more inclined to tell that millennial that his only goal is to pay off debt, whereas your goal is to try to help them figure out ways to reach all of their goals.
See also: Millennials: Don’t make the retirement mistakes your parents made
MarketWatch: Also, some people probably don’t find becoming financially literate to be all that fun — are the ways to make budgeting, planning and implementing those plans a little less mundane for those people?
Douglas: Budgeting and reconciling is not fun. When I am working with people one on one, it is much easier for me to get them excited about the fact that you’re doing some of these things, it’s not fun, but you’re doing them so you can achieve your goals. If you told me owning a home is super important and the biggest goal right now, and you’re not pumped for that, you’re not going to do the things necessary to achieve those goals. When it comes to needing to do the things that aren’t fun, you’re keeping your eye on the prize — that’s the thing that should be fun. I know we like using apps in personal finance, like Mint and Quicken or whatever the tool is to make life easier, but I issue caution — there are no shortcuts when it comes to the fundamentals of personal finance. You need to put the work in to get the results.
MarketWatch: What would you say are the top five tips millennials should take away from the book?
Douglas: Know what it is you want for yourself. Master you cash flow. Understand how to get a return on your investment in education. Make smart financial decisions throughout your life. Our financial world is different than any other time, so our approach to our financial challenges must be as well.
MarketWatch: Millennials were at pivotal moments of their lives when the financial crisis happened, whether still growing up or just starting out in the real world. Do you think the financial crisis had any lasting effects on the way they approach their finances, and may approach retirement in future?
Douglas: When Heather and I were getting our careers started, it definitely had an impact — we had friends who lost jobs, we had friends who couldn’t get work. Young millennials who were safer in school, they had to go into a pretty weak job environment and watch parents struggle at home. For all of these reasons and a few more, the recession definitely had a lasting impact and attitude about investing, not just money, but time.
Heather: That’s how the gig economy took hold. There’s a bit more skepticism toward employment, but healthy skepticism. A lot of our successes will come from us and us alone. We aren’t expecting others to curate that pathway for us — we all realize that what we ultimately end up succeeding will come from our efforts.