Millennials, will we ever retire?

“Why were you in the woods?” she yelled.

“You were supposed to go straight home and finish your homework…You’ve got exams coming up”, she continued.

I never cared much for exams, but I felt guilty for not telling her earlier.

A branch had broken. I tore my blazer and the palm of my hand was left badly scratched. Within a week it was infected and I sheepishly confessed what happened to my mother.

After an hour-long wait, a tired and overworked junior doctor saw me. He told the nurse to put a plaster cast on it and to come back in the morning.

My mother complained bitterly. The doctor ignored her. So she raised her voice and began to shout. The nurse told her off firmly. A police officer came to see what was happening. A drunken man appeared and then threw up all over the police officer. The police officer proceeded to arrest the drunken man for assault. The doctor complained that this man needed medical care first.

“Mum I want to go home now”, I said abruptly. Surprisingly, she agreed.

The next day we were back in hospital. This time we met another doctor. When he cut open the plaster cast, he was in shock.

“He needs to go into surgery immediately” he said alarmingly.

A consultant came and then a team of surgeons. A nurse inserted a needle into my vein and hooked me up to an intravenous drip of antibiotics. Outside, I heard the doctor speaking to my mother in a hushed voice, “We need to operate. But, I’m afraid he may lose three of his fingers”.

Retirement at the age of 12 years old, barely registered in my mind, but losing my fingers certainly did. It seems, actions have consequences, but so does the lack of them.

I would love to say I learnt this lesson on that day, but I didn’t.

I’ve got a large mortgage that needs to be paid. I’m actively saving for my children future whether it’s school, university or getting them onto the housing ladder. And, I’m only just about making ends meet on my salary, buying food and paying utility bills. Retirement plans are the last thing on my mind.

The problem is that if I continue like this, I won’t retire.

I am a typical millennial.

Millennials, like myself are not saving enough independently to retire in 30-40 years time. We are relying on a future state pension, which might not exist because ageing demographics make it impossible to finance.

We are also counting on our corporate pension plans, which are nowhere near as attractive as the ones some of our parents are on.

The companies they worked for, put a little away each month in a large corporate pension fund. When they retired, they paid them a portion of their final salary and will do so until the day they die. If the corporate pension fund isn’t sufficiently funded, their company matches the shortfall.

These days the companies we work for still put a little away for us, but in the vast majority of cases, you are now responsible for your pension portfolio and the investment decisions you make. This means that if there is a significant stock market crash that wipes out your pension portfolio just before you retire – tough luck.

That’s why it is now even more important to put something away for retirement than it was in the past. Unfortunately until now, this hadn’t really registered with me.

I’m not alone. As the graphic below shows, we only really start saving seriously for retirement later in life.

Humans are rubbish at mentally calculating the risks we face – myself included. We give greater weight to the utility and benefits of near term financial goals than our retirement that’s feel far away.

But this is stupid.

The earlier you start saving for retirement, the smaller the amount you have to pay. You have more time, plus the effects of compounding the wealth your pension pot are considerably greater.

I’ve done a few simple calculations on my bond calculator. I made a few assumptions: a retirement age of 65 years old; a 4 percent growth rate; and inflation at 2 percent.

I’ve taken two millennials: one aged 22 years old (fresh out of university) and the other 30 years old (just married and having kids). And, I’ve picked two from gen x: one aged 40 (mid career) and the other aged 50 (at their pinnacle). I calculated what they have to put away monthly with a realistic initial deposit to get a million dollar pension pot.

If you’re 30 years old you can still start now and retire a millionaire. Even at 40 years old, it’s not too late.

Many of us are not saving enough for retirement to achieve this type of result. More worryingly, the poorer you are the less likely you are to even save at all, as the chart below shows.

Wealthier people have access to better financial advice because they can afford to pay for it. They are much more likely to retire with a pension pot that’s greater than our million dollar goal. It seems in life, the rich get richer when they retire and the poor just carry on working. That’s why it’s important to do something now.

Most governments in the developed world offer extremely attractive incentives to save for retirement. There are tax breaks and some government will even match your contributions. So there is no excuse.

My wedding day was one of the best days of my life, but it could have been different. Picture this.

She turns to me and says, “Take this ring as a sign of my love and fidelity…”

“Where’s your finger?” she asks shocked.

The priest looks at my hand. Horrified, he faints on at the altar. My big day is ruined.

Ok, this never happened and it’s a slightly ridiculous scenario. However, retiring isn’t, so take the consequences of what might happen to you seriously if you leave it too late.

After two delicate operations and six months of physiotherapy, my wedding band now sits snuggly on my ring finger two decades later.

Hmmm. Perhaps, I should start saving for retirement.