Trustnet Magazine Issue 21 September 2016 | Page 12
YOUR PORTFOLIO
HELP FOR
HIPSTERS
The media stereotype of the Millennial with
an endless supply of disposable income
overlooks the fact that many of them have
little or no retirement provision,
writes Daniel Lanyon
W
HEN THE FIRST
MILLENNIALS WERE
BORN, Apple cofounder Steve jobs was
a bearded 25-year-old
with stretched finances and an
uncertain future. Thirty years later
he was one of the richest people
alive. It seems unlikely the financial
future of most Millennials will be so
prosperous.
For many Millennials – defined
by researchers Neil Howe and
William Strauss as anyone born
between 1982 and 2004 – their
smartphones, chai lattes and
Instagram feeds full of holiday
snaps belie a hazardous truth:
many are broke and unable or
unwilling to save for the future,
particularly for their most
important but least glamorous pot
of cash: their pension.
The scale of the problem is
considerable. For anyone aged
between 20 and 35, life expectancy
ranges from between 85 to 105.
Research by BlackRock suggests
there is a lack of understanding
among this generation that, while
they will be retiring later than
their parents, they are likely to face
a longer period of time in which
10
to fund both the routine costs of
living and care in ill health. At the
same time, other research shows
that the average Millennial has
eschewed pension investing in
favour of experiences, the cost of
living and saving for a house deposit.
NOT THE WORST IDEA
Bank of England chief economist
Andy Haldane recently said that
the latter may not be the worst
idea as the young could potentially
earn more from housing than their
pension. But what about the power
of compound interest, I hear
you ask?
The stark truth is that you are
always better off starting your
pension early. Imagine two
people. One starts saving the same
amount every month at 21, stops
at 35, and is constantly invested
in a portfolio with annualised
returns of a modest 7 per cent.
The second starts at 35 and stops
at 65, saving the same amount
every month and with the same
annualised returns. Thanks to
compound interest, the first will
be significantly better off at 65
despite paying in to their pension
for half the amount of time.
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