Within the last few years, Meghan O’Dea has had to cash out her 401K twice. In both instances, she had been saving for about a year, squirreling away part of her paycheck into an account she thought she wouldn’t have to touch until at least her 60s. But twice she was laid off from salaried, full-time jobs, and couldn’t keep afloat without dipping into her retirement account.
“I’m 31 now and feel guilty about no longer having retirement savings, even though I know I did the best I could do at the time and had to make those choices in order to survive,” she says. She now has to start saving for retirement all over again, and because she’s a freelancer, this time she’ll have to do it without her employer’s contribution.
As a millennial, O’Dea is part of a generation faced with a changing financial landscape that’s making it more difficult to save for retirement. The cost of college education continues to shoot up, pension plans are nearly extinct, and the rise of the gig economy means workers not only have to usually shoulder the cost of insurance (plus a bigger chunk of medical expenses), they have to put enough money away to be able to live comfortably during retirement without employers chipping in.
All this means that most millennials aren’t saving for old age. A recent study from the University of Missouri analyzed millennials’ retirement savings and found that about 63 percent of workers in this generation didn’t have retirement accounts. And some groups are worse off than others: around 82 percent of self-employed people didn’t have a retirement account, and balances for black workers were about half of what white workers had.
Even when millennials do work for an employer who offers a retirement plan, only about one-third of them participate, according to a recent report from the National Institute on Retirement Security—and “can’t afford to contribute” is one of the top three reasons. When you factor in more immediate expenses that need to be paid off like rent, food, transportation costs, and other bills, putting money into a retirement fund can be challenging because, for many, there’s little or nothing left.
Saving up for later can also be challenging for anyone in their 20s and 30s because retirement is not an immediate need. “Our brains are usually not motivated by abstract ideas, and because retirement is so far away for millennials, they are less likely to take action toward that goal,” says Bradley Klontz, associate professor of practice in financial psychology at Creighton University.
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Even though millennials are decades away from retirement, that stage of their lives is already stirring up fears and anxiety. A survey from Bank of America reports that 21 percent of millennials are worried about retirement, concerned that they’ll outlive their savings or have to work past the age they were hoping to stop at. Like any type of stress, agonizing over finances can lead to physical ailments like headaches, weight gain, or elevated blood pressure, and it can also impact one’s psychological health, triggering insomnia, anxiety, and fatigue, says Ashley Hampton, a clinical psychologist in Birmingham, Alabama.
O’Dea was hit hard by the uncertainty of what her retirement holds this past fall and winter, and her body felt the impact. “I was so stressed out I made myself sick,” she says. “I’m worried that I’m going to be stuck in this cycle of saving up just to have it all wiped out by the unexpected.”
While temporary financial anxiety can motivate us to make helpful changes, persistent worries can become crippling, Hampton says. “People can get stuck in these feedback loops where all they’re doing is thinking negatively and because they don’t think they can do something, they don’t," she says. "If this goes on long enough, it could lead to situational depression or other serious mood disorders."
Fear—like worrying that you’ll never get a grip on your finances or will retire broke—can also become an obstacle. “Fear clouds our thinking and judgment,” Hampton says. “So instead of being able to make a decision and see step A, B, and C, often times you don’t even see step A. You might not even be able to see what’s wrong at all in order to make necessary changes,” she says. “On the other hand, you might make decisions that are not efficient or productive in the long term just because you want to feel like you are taking action.”
It’s something that Jennifer Billock, a Wisconsin-based freelancer who is also struggling to save for retirement, experienced earlier this year. “My bank account was negative, I couldn’t pay the mortgage, I was out of groceries, and my loan payments were overdue, so I started applying to part-time jobs left and right but deep down I knew I wouldn’t be able to keep them,” she says. “I left like I just needed to do something, even if I knew that something ultimately wouldn’t end up working.”
Klontz adds that some millennials could have developed fears about money and retirement way before they graduated. During the recession, many millennials saw their family’s savings and retirement crumble and Klontz believes that experience could have scarred people. “Financial loss can be incredibly traumatic and when you see people close to you struggle in a exceptional way, you begin to create beliefs about that experience that prevent you from essentially following their path, like mistrusting the stock market or financial institutions,” he says.
“Unfortunately, often times this means that you create beliefs that are too rigid and might actually be self-destructive. Right now, we’re having one of the biggest stock runs we’ll probably see, but many people are missing out because they were afraid to participate, even though the circumstances are a little different.”
Even though many millennials understand the importance of putting money aside for retirement, some just won’t be able to until more money is freed up. “I owe more than $100,000 in student loans and $20,000 in credit card debt from trying to manage multiple layoffs before I went full-time freelance,” Billock says. “In order for me to even think about saving for retirement, I need to get some of my debt erased first.”
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