Millenials, Boomers and Busters

Thanks to Monevator this week for pointing me toward an FT article which I would otherwise have missed, that seemingly caused a bit of a storm (or at least a heavy downpour) on Twitter. It had highlighted a calculation that suggested 25 year old Millennials will have to save £800 a month into a pension to generate an income of £30,000 a year from it when they retire. (It’s actually a summary review of an original article posted here.)

One of the funny things about this calculation is that I bet it confronts a lot of Millennials with a really uncomfortable truth: on the one hand they know that £800 a month is a serious amount of cash. It’s an amount of money that has a reality about it. Mentally, they can grasp it. That’s two months worth of weekend partying. It’s four hundred McDonald Happy Meals. Two hundred pints of beer. And they have to save that every month until they retire!

As if that’s not bad enough, I bet many Millennials will be aghast that such an immense monthly “saving” will only generate an absolutely paltry income of thirty grand a year for their retirement. Thirty grand a year?! Doesn’t Kim Kardashian spend this amount a month on her hair? Taylor Swift surely earns it in five minutes? Ed Sheeran hands this to his mum and dad as weekly digs money. Thirty grand a year? That’s almost literally nothing. Even a Millennial Junior Doctor earns more than thirty grand a year and they can’t survive on it. What chance the rest of them?

Thirty grand a year, however, still seems like a serious amount of money to me. And to the generation before me it will seem like a lottery win – my parents couldn’t even dream of earning that amount when they started out from school.

When the Millennials moan about how hard their lives are compared to The Boomers, it inspires irritated letters from their elders complaining that life isn’t all that much fun on the state pension either. Or by more affluent pensioners stating they worked, were taxed and then saved for everything they’ve got – the youth of today will just need to buckle down and do likewise.

I’ve sympathy for both sides of the argument. My son is leaving University with about forty grand of debt and will need at least another ten thousand if he wants to put a deposit down on a flat. Where is he going to get that kind of money if the “bank of mum and dad” doesn’t step in to help, if they can? Encouraging saving is one thing, but encouraging debt is a ruinous practice, and I find it hard to believe that successive Governments are fully behind it, fuelling the fire. Haven’t we learned anything?

At the same time, even diehard FIRE practitioners might struggle on the state pension, while those of us with personal schemes are chewing our nails about how much that pot is going to be raided going forward (the only guarantee is that it will be raided.)

For me, my personal pensions are now pretty much a zero sum game: the more the Government takes, the more I lose. I’m not contributing any more in and won’t benefit from any tax changes that might previously have gone in my favour as a wage earner. I’d settle for this, however, if Government would just pledge to stop tampering any more with them and allow us to plan with a bit more certainty for our future.

When it comes to pensions, time is no longer on my side (to an extent) but the combination of saving money over a long term and compound interest has served me well to date. It’s that principle that I’d like to impress upon younger people today. I’m not going to enter the debate over whether they should aim to save £800 a month or 10%, 20% or 40% of their net income – I’d settle for them saving anything out of their wage packet on a regular basis. Even a fiver a week, just to start the habit. If they can save five, maybe that will lead to ten. The important thing is to do it and never, ever stop. Just keep it going. What an advantage that will give them when they hit fifty. And think if two such like minded individuals get together and double up? Who knows how much they might accumulate?

For me, regularly saving money is the core competency that should be inculcated from birth. Or earlier. Everything else is just finesse. It seems to me that saving £800 a month is a daunting amount of money. It’s a mountain that seems so impossible to climb that you might as well not bother. Wouldn’t it be more positive to point out that if a twenty year old could save just £80 a month over their working lives they’d pick up a one hundred and sixty grand lump sum at the age of 60? Okay, I  know it’s not quite that simple, you might not average a 6% return and what about inflation etc., but it’s the point that counts.

The best financial decision I ever made was almost a mistake – I signed up for my company pension on my first day at work on the advice of my line manager. My financial education up to that point had been almost non-existent. I’d no idea what a stock or share was, never mind an Index Tracker. There was one big exception to this though – I had been brought up and educated to save money. From about the age of ten, my mum took me to the Post Office every Saturday to make a small deposit in a Savings Account she’d opened for me. (It was embarrassing when she was still taking me at thirty five, but the lesson stuck.) Today it’s a lesson that still needs to be learned and practiced by just about all of us.

9 thoughts on “Millenials, Boomers and Busters

  1. With you on the save something, just start somewhere, but that must be really hard now because mahoosive amounts of debt is normalised to people due to the student debt. What’s another £1500 on the credit card in £40k? I can hear the YOLO etc and see the attarction.

    You were much more prudent than I was, but at least my parents gave me a big win by inculcating the principle of avoiding debt, so after 25 I didn’t do that other than on a house of for a few months. I was 35 before I started trying to save strategically, and made a pig’s ear of the first try at the stock market. But like you I was in the pension scheme.

    The FT figures you need 30k? I’m not going to be living on 30k p.a. FFS, but I got more than enough. If people are brought up to shoot for the moon on a stick no wonder they give up in disgust. 30k is over the median income in the UK, and whatever FT pillock started out there has no idea of how real people live.

    OTOH the Millennials travel and eat out much more than I did in my 20s, and don’t seem to share rented rooms so much as people used to.

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    • @ermine — One reason you don’t need £30K a year is because you own your own home. What an asset to have! (An asset! Yes, an *asset*! 😉 Sorry, I’m a terrible one for not letting of old debates go…)

      As a nearby Millennial south of Scunthorpe what they think their chances are of owning a house.

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      • I’d have been better off buying shares like your good self 😉 I am about 100 miles south of Scunthorpe. Zoopla tells me I could buy a end-terrace house in the road I first bought a mid-terrace house in for only slightly (~10%) more in inflation-adjusted real terms than I paid in 1988. A fact that I find slightly scary in itself, but not much has changed in real terms.

        If we’re going to count housing as an asset, it’s not a big enough part of my networth to explain the difference. To qualify that I could rent somewhere like my house for about 8.5k p.a. I spend less than 20k a year, so the FT is still living it up on fast cars and champagne IMO. There’s nothing wrong in that but I can’t think of any place worse to retire to than London, just as I can’t think of any place that is more fun in one’s 20s to 30s. Benchmarking retirement spending by London prices is setting up for a fail. When was the last time you saw an OAP in the capital 😉

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  2. @Ermine

    On the other hand 20% of millenials don’t even drink and fewer have cars

    The reason that they might appear to be affluent is that record numbers live with their parents

    You might think thats fine and good, both then of course their job opportunities depend on where their parents happen to live

    As with so much of the UK its as much about inequality within generations as between them

    Hence why the FT writer has her perspective, the profession of journalism for higher end newspapers is only really open to young people who can rely on others’ money to fund them through a series of internships and precarious freelancing

    Which is why you see salaries of £100,00 a year being described as “middle class” in the Telegraph and Mail

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    • @Neverland gosh, how much did you drink as a young ‘un 😉 I’m not saying the cost was trivial in my case, but rent was by far my #1 cost living in London (I used a bike to get to work, else transport would have run a second). So much so that I decided to get out. Plus ca change and all that.

      But yes, if half of journalists are really privately educated then our mirror to the world is increasingly distorted towards rich people masquerading as ‘middlle class’. I went on the IFS’s wheredoyoufitin site, pitched in a fellow earning 100k so taking home 60k and the IFS couldn’t really deal with that “you have a higher income than around 97% of the population – equivalent to about 61.1 million individuals.[…] Your income is so high that you lie beyond the far right hand side of the chart.”

      Quite. This is not a canonical middle class salary.

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  3. Interestingly, my parents had me save as well, but the money I saved through them is now kind of “in limbo” since I moved countries early in my adult life and don’t really have the opportunity to move that money around without an expensive travel abroad…

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  4. Each generation will have a different experience to the previous one or the next one and I can understand the arguments made by some Millennials that they are getting a raw deal compared to their parent’s generation. But it seems to me that the retirement model the (at least the early) boomers are enjoying is simply unsustainable. Both in the US and the U.K. It is fairly clear that something has to give, and soon. I saw a couple of interesting charts in a retirement study done by Merrill Lynch last year (US data) that displayed average retirement ages and life expectancy at birth between 1900 and 2010. In 1900, av life expectancy was 47 and av retirement age 76. Not much time for sipping Mai Tai’s there. In 2010, the av life expectancy is 78 while av retirement age is 64. Interestingly, the av retirement age trended down from 1900 to a low of 63 in 1990-2000 before picking up again at 2010. Seems a lucky few did pretty well there for a while. So I guess what I’m saying is that personally speaking, I’m happy that I’m projected to live longer – it’s much preferable to popping my clogs nearly 30 years before the average retirement age, as in 1900. If I missed out on the optimal period in which to retire simply because the cosmos decided I would be born when I was, well that’s a shame, but I’m ok with it. I’ve decided to save and invest and rely on my own efforts – the longer I live, the better and if that means more saving required, the pin is worth the gain. I don’t have much confidence in what the government of the day might give me in 30 years, even if they were so inclined. I certainly am not going to rely on them to provide me with the right set of circumstances and tax regime to ensure I have a luxurious retirement. I’m not angry about this either. When it comes to the cost of housing (specifically buying a home), I think we Brits are particularly prone to viewing home ownership as a human right. It is not, and as MMM and others have argued well, buying is often the sub-optimal decision, even if you are able. Life is hard, but if you step back a bit and see the broader perspective, we have it a lot easier than they did back in 1900. For current Millennials to decide not to save at all because they are going to get a lesser ‘deal’ than their parents is very short sighted and will cause then misery later. Save something, save anything is pretty good advice and it would have been so at any point in history.

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  5. I’m hoping your silence is due to something fun like travelling and not signifying a return to work/demise of the blog, as it’s good reading!

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    • Thanks for the positive feedback Elliot. I had written a post on pensions last week which I had to scrap when the “U-turn” was announced. However I’ve salvaged it for this week’s post….which I’m finishing off and posting tomorrow.

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