The Uphill Battle for Millennial Renters: Key Findings from the 2023 Mercer Retirement Readiness Barometer
Renters must save 50% more than homeowners.
The Retirement Challenge for Renting Millennials
The 2023 Mercer Retirement Readiness Barometer indicates that millennial workers who rent throughout their careers must save 50% more than homeowners to ensure a comfortable monthly income during retirement. The study shows that lifelong millennial renters need to save eight times their salary to be prepared for retirement, aiming to retire at 68. In contrast, homeowners need to save just 5.25 times their salary and can retire three years earlier, at 65.
Comparing Homeownership and Renting in Retirement
Retirees who own their homes have a financial advantage, as they typically face lower housing costs and enjoy more flexibility. Moreover, downsizing can offer significant monetary benefits. Renters, however, must continuously pay rent or risk eviction, no matter their age.
Millennial Struggles in a Shifting Market
Due to escalating living expenses and diminishing housing affordability, many millennials may be forced to embrace lifelong renting, barring them from entering the housing market. Furthermore, growing consumer debt, caused by increasing living costs, hinders millennials' capacity to save for a down payment or retirement.
The Value of Employer Plans for Millennial Workers
This research assumes a millennial worker with a $60,000 starting salary contributes 10% of their income each month to a savings plan. Employer matching programs can make these ambitious savings targets more achievable, enhancing employee financial well-being and fostering productivity and talent retention. According to the latest Rentals.ca rent report, average rent in Canada surged nearly 10% year-over-year in February to $1,984 per month, with variations depending on the region. Lifelong renters must save eight times their salary to retire at 68, while homeowners only need to save 5.25 times their salary and can retire three years earlier at 65.
Embrace Risk Wisely
Although millennials may covet the wealth of their boomer counterparts, those nearing retirement must deal with poor equity market performance, inflation, and surging living costs. Mercer's analysis cautions boomers against moving to low-risk assets, such as Guaranteed Investment Certificates (GICs), as this could heighten the chances of depleting retirement funds or needing to work extra years to reach retirement readiness. Alternatively, postponing government benefits like the Canada Pension Plan (CPP) or Old Age Security (OAS) until age 70 can enhance monthly income and provide better inflation protection.
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Source: Yahoo News & Mercer Report
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