Yahoo Finance 7 Things Millennials Won’t Be Able To Afford in Retirement
The cost of living is always on the rise, but certain goods and services have become largely unaffordable for the average person. Take housing prices, for example. Ten years ago, the median sales price of a home in the U.S. was about $275,000. Today, it’s closer to $420,000, according to the St. Louis Fed.
The value of the dollar also isn’t quite what it used to be, thanks to inflation. If something cost a dollar twenty years ago, it’d cost $1.65 today — that’s a 65.3% overall increase.
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But wages haven’t kept up with inflation. According to the Federal Reserve, the median weekly earnings was $337 in 2004. In comparison, that number’s only risen to $365 this year. That’s only an 8% increase, far below the inflation rate during that same time period.
So, what’s this all mean for people going forward? For millennials, born between 1981 and 1996, it’s a sign that certain things will be out of reach by the time they hit retirement age — if they’re not already.
Here are the top things the average millennial won’t be able to afford in retirement, according to experts.
Vacation or Second Homes
“Homeownership has become the pipedream for many millennials, and even their life savings won’t be enough to help them buy a house,” said Ethan Richardson, a financial advisor and marketing director at Exquisite Timepieces. “Since the millennials are burdened with student loans, credit card debts and high inflation, their chances of owning a home are less likely.”
For some millennials, homeownership is still feasible right now. But with rising housing prices, the idea of getting a second home — or a vacation home — in retirement is starting to feel a lot less realistic.
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Advanced Healthcare Solutions
“Healthcare costs have skyrocketed in recent years. Not only will millennials struggle to afford homes, they may find themselves mired in medical debt if one thing goes wrong,” said Dan Kroytor, CEO of Tailored Pay. “And not only that, these debts and costs tend to compound on top of each other. Without other financial burdens like student loans, credit card bills or living costs improving, the costs of health insurance, hospital stays, private doctors and the like are most likely only to snowball once accumulated until something else changes.”
It’s not just standard healthcare that’s starting to feel out of reach, but advanced healthcare solutions and technologies.
“Advanced healthcare equipment and specialized care services could also be less affordable,” said Vincent Cerniglia of Noreast Capital Corporation. “As healthcare technology advances, it becomes pricier, and unless healthcare reforms significantly reduce costs, managing health in retirement with the best available technology will be financially demanding.”
Higher-End Vehicles
According to Kelley Blue Book, the average cost of a new car is $47,401. Luxury vehicles and electric cars tend to go for much more than that, though.
These price tags are already out of reach for the average person, but they’re even less affordable for those with limited funds at their disposal.
“New car prices have surged, and retired millennials on fixed incomes won’t be able to come up with the funds necessary to buy one,” said Melanie Musson, a finance expert with Clearsurance. “Even late-model used cars may be out of reach to many millennials.”
Specialized vehicles, like luxury cars and EVs, also generally come with higher maintenance costs than more standard options. Even assuming government incentives continue to exist for some of these cars, they may not be enough to offset the rising prices.
Long Vacations
The cost of travel continues to rise, as well. While airfare has largely dropped in recent years, it’s historically outpaced inflation. And accommodations aren’t cheap, either.
Of course, travel prices vary based on where and when you go, and for how long. According to GoGoCharters, a weeklong vacation in the U.S. costs an average of $1,984 per person — or $7,936 for a family of four. This includes everything from travel and accommodation to food and entertainment.
Still, this expense can be hard to stomach as it is. In the coming decades, it could be even less affordable.
Snowbirding Lifestyle
A generation or two ago, the snowbirding lifestyle was much more realistic than it seems even today. People used to leave their main home during the cold winter months to avoid the harsh weather, only to return with the season’s change. In some cases, they’d stay at a vacation home or at a friend or relative’s place to save money.
But becoming a “snowbird” is becoming a bit less realistic as time goes on and prices continue to rise.
“Millennials won’t be able to afford snowbirding and the whole travel-and-leisure thing once they retire,” said Richardson. “Residents of the northern states will have to face the harsh winters, as traveling to other states for extended vacations means quickly depleting their retirement savings.”
Sustainable Living Solutions
Many people strive for sustainable living, but with that comes a greater expense that not everyone can bear.
“At Noreast, we’ve seen an increasing interest in financing environmentally friendly solutions, which can come at a premium,” said Cerniglia. “As sustainability becomes essential, the initial setup costs for green technologies like solar panels or sustainable home renovations might be a luxury outside the average millennial’s retirement budget.”
Pre-Retirement Lifestyle
Retirement means living on a fixed income — one that’s generally much less than what you had during your working years. With the cost of living as high as it is — and likely to continue to rise in the next few decades as more millennials approach retirement — it’s becoming harder to save enough to maintain a pre-retirement lifestyle.
“Financial experts recommend having retirement savings of 8-12 times your final salary to replace 80%-100% of pre-retirement income,” said Kathleen Keyser, a customer-focused account manager with eMerchant Authority. “However, based on current savings rates, the average millennial is on track to have only $50,000 to $200,000 saved by retirement age, which is significantly less than the recommended $1.8 to $4 million.”
Without enough funds set aside for retirement, the average millennial will either need to cut back on their day-to-day expenses or downsize and potentially move to somewhere cheaper just to get by.
“Depending on where the person lives, they may not be able to stay there, thanks to property taxes and other local fees,” added Musson. “Taxes always go up, and even if your home is paid off, the taxes could exceed what you were once paying for your mortgage.”
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