The Future is Uncertain. Save Anyway.

Investing
Image copyright Catherine Lane 2015

The advice is clear: The earlier you save for retirement, the better.

That’s the takeaway of a September JPMorgan Asset Management report on millennials and retirement. It noted the struggles of this generation (student loan debt, delayed homeownership, slow wage growth — sound familiar?). The solution, the report said, is to start saving at age 25.

Great idea. Hard to carry out.

Much is made about the fact that millennials have time on their side, but what’s a benefit when it comes to investing can also be a roadblock to motivation. Your own future is unpredictable; the world’s is even more so. It’s hard to focus on saving for a retirement that is 40 or 50 years away.

What 2050 and beyond might look like

The Billfold recently posted a science fiction writer’s take on retirement planning that brought up a range of future unknowns, from the outlandish (you may one day be able to upload your brain into the cloud, opening the possibility of downloading it into a new body and carrying on forever) to the well-documented and likely inevitable, such as climate change (it could affect where you plan to retire and how long you live).

The JPMorgan report also acknowledges uncertainties about the future, though through a financial lens rather than an apocalyptic one. The real bowl-me-over stat: More than 75% of adults in their 50s experience job layoffs, the death of a spouse, divorce, new health problems or increased dependence of parents or in-laws, all of which can hurt their ability to save — and even wipe out an existing pot of money.

Saving amid uncertainty

All those unknowns make a handy excuse to avoid saving for retirement, particularly early on when you’re so far removed from those years. You might die early, or live forever. You could retire on a Florida beach, or live in a world where that beach no longer exists. Your job may be taken over by a robot, forcing you into an early retirement you’ll never be able to save enough to fund. Or you could save most of your life, only to have a divorce, job loss or health crisis drain your funds later. What’s the point?

The point is, the future has always been scary. But that uncertainty makes it all the more important to control the things you can control — and one of those things is saving as much as you can, as early as possible.

Put money away the right way

Use the best available savings vehicles. First, grab your employer’s 401(k) match, if one is offered to you. Once that match is met, contribute to an IRA, as those accounts tend to carry a larger range of investments and lower expenses than 401(k)s. A Roth IRA is the right choice for most young people who are eligible; those whose incomes are too high or who want the immediate tax deduction can contribute to a traditional IRA.

Then invest, something many millennials hesitate to do. Recent research from State Street found that this age group holds an average of 40% of their saved money in cash (bank accounts or term deposits such as CDs); the JPMorgan report notes similar findings. Millennials are understandably gun-shy, having grown up or started their careers during the recession, but that’s unfortunate because saving alone isn’t enough for retirement.

No one is suggesting that you get into stock trading, but you do have to invest in a diversified portfolio so your money will grow, building on itself and outpacing inflation. That’s what happens over that long time horizon everyone keeps talking about.

Plan your financial future

Finally, you have to face the facts. Think about what your retirement might look like and how much you’ll need to fund it, based on the information you have available now. A retirement calculator is a good place to start.

Once you have a target figure, save as much as you can when things are flush, in preparation for lean times and events beyond your control, such as market crashes, job loss, health struggles and the possibility that science may help you live longer than you anticipated or climate change shortens your life instead.

Because yes, the future is uncertain, and you don’t know if you’ll live to 100 or only half that time. But if you do the responsible thing and save anyway, you’ll be as ready as you can be.

 

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