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Millennials: Your Dollars in 30 Years

Filed in Sponsored Content by on October 6, 2016 0 Comments

Many millennials believe they will never accumulate a million dollars in their lifetimes. Although they may face significant financial burdens that previous generations did not necessarily struggle with, particularly as home building professionals, they can potentially have a comfortable standing for retirement if they start saving early and gradually increase their contributions to their plans.

Student loan payments are taking up a growing chunk of post-graduate income, explaining why the primary concern for millennials is the heavy burden of student debt. The average Class of 2016 college graduate has $37,172 in student loan debt1, which translates into larger monthly student loan payments, diverting money that could otherwise go into retirement accounts. Not only is average debt rising, but more students are taking out loans to finance secondary education. Almost 71% of bachelor’s degree recipients will graduate with a student loan, compared with less than half two decades ago2.

Aside from increased student loan debt, how else do millennial home building professionals differ from previous generations? Millennials are renting more often, rather than taking on home ownership. Fifty-six percent of renters said they would choose to rent because they do not have enough money saved or have too much debt3.  According to Zillow, average rental rates are up 11% since 2012, and the cost of living is rising4. Because tenants are spending more on rent, less of their earnings are going into savings. And, if they’re not saving early, they could be missing out on thousands of dollars of accumulation, or the benefits of compounded interest.

Whether young home building professionals decide to work for a large company or launch their own small businesses, the resulting impacts of debt remain the same. Most new business owners rely heavily on personal assets and loans to get their companies started. The effects of student debt could be significant, even among the startups that are heavily funded by external capital6.

People often use the phrase “time is money,” and in this case, the longer you wait to start saving for retirement, the more you miss out on the benefits of the incredible power of compound interest. For example, take a young real estate marketing professional with a $30,000 salary. He or she receives 4% annual raises, and plans to retire in 30 years. He or she puts 4% of their salary into a retirement plan each year and earns an 8% annual return. If they started investing today, they’d have $220,944 upon retirement. If they waited five years before investing, they’d have $164,878. In this hypothetical case, waiting five years would cost them $56,066.

millennial-retirement-pic

Although someone who starts saving today puts away about $6,500 more than if they waited five years, since they are investing their money for a longer period of time, they end up with a significantly higher ending balance because of compounding interest.

A key message for millennial home building professionals is to pay yourself first. It’s important to put money away into a retirement savings account right when a paycheck is received, and to increase yearly contributions with each salary increase. Millennials may be constrained by student debt and demanding monthly expenses, but with small steps, they can be making their way towards a more comfortable financial position for retirement.

Call 1-800-523-1125 to speak with an AXA Equitable retirement program specialist or visit axa.com/nahb to learn more.


1 https://studentloanhero.com/student-loan-debt-statistics-2016/
2http://blogs.wsj.com/economics/2015/05/08/congratulations-class-of-2015-youre-the-most-indebted-ever-for-now/
3http://libertystreeteconomics.newyorkfed.org/2014/09/why-arent-more-renters-becoming-homeowners.html#.V6iMYdIrLcs
4http://www.zillow.com/research/rent-ready-to-outpace-home-values-9457/
5http://www.kauffman.org/blogs/growthology/2015/05/3-ways-student-debt-can-affect-millennial-entrepreneurs

Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided by this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer.

The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor. AXA Advisors, LLC and AXA Network, LLC do not provide tax or legal advice.

Withdrawals from retirement plans are subject to ordinary income tax treatment and if taken prior to age 59 ½ may also be subject to an additional 10% federal income tax penalty.

The retirement plan would be funded by an annuity contract issued and distributed by AXA Equitable Life Insurance Company (AXA Equitable), New York, NY. Annuities contain certain limitations and restrictions. For costs and complete details, contact a retirement program specialist.

GE 118322 (9/16) (Exp. 9/18)

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