Why Millennials want to retire early?
Millennials and Gen Zers are looking to retire early. They are targeting to retire in their 50s — symbolling a generation striving for balance between work and life.
I am not Millennials, in fact I am older (in my 30s). Yet, I cannot agree with the younger generations’ attitude towards work, life and retirement more. Covid-19 has shown us how extraordinary things can happen to disrupt our life all of a sudden. Work becomes remote, education goes online, business fails and other business booms. This series of events have not only forces us to change our lifestyle, but also a re-thinking of work and retirement.
The difference in perspective
For the younger generation, retirement can have a fundamentally different meaning than their older counterparts. In my dad’s generation, retirement means the employer pays you a lump sum to live comfortably for the rest of your life but most likely you would not work anymore. Working after retirement was seen as a disgrace and elder people are recognized as physically less energized and therefore less attractive as an employee choice. Retired people are considered “useless” or non-productive anymore in the society and thus feel like a burden. Many people in the older generation fear about retirement because they see it as the day when they lose value, become obsolete and can no longer contribute. That was the older generation’s perception of retirement.
The new generation, however, see retirement as just a milestone of career. It signals the option to work on your passion project rather than working for money. It can even mean financial independence. Working after retirement is not seen as a disgrace, rather it is encouraged and admired. When you ask the Millennials what they would do after retirement, they would shout out their passion — writing book or start a blog, volunteer for a non-profit close to their hearts, start a youtube channel, build a business, trying things that they have always wanted to try but did not have the chance, practice yoga etc. All of these post-retirement plans are filled with passion. They are not fading away after retirement, rather they are getting more involved with a growth mindset. That is why they look forward to retiring with excitement and wish it to come earlier.
The difference in perspective towards retirement is why the older generation is trying to push back and delay the retirement, while the younger generation is working hard to retire as early as possible.
More financially empowered
The new generation is also feeling more empowered financially. In a survey conducted by a mutual fund, Millennials and Gen Zers feels almost 60% more confident financially than their older counterparts to retire.
As a matter of fact, the stock market S&P 500 has gone up more than 13% in 2021. That perhaps is one of the justifications behind the survey. That aside, Millennials and Gen Zers are more dependent in terms of financial management, and they take more responsibility than their older counterparts to make sure they have sufficient funds for retirement. That can be explained by the change in the provident funds.
Decades ago (in my dad’s generation), the retirement provident funds are fully funded by employer, meaning that employees do not need to bear any responsibility for contributing towards retirement. They rely on their employer to save money for them. When they retire, they simply take money out from the fund to live for the rest of their life. In the age where interest rate is still high (around 7–8%), they can comfortably live with interest from bank on their lump sum fund wholly contributed by their employers. You see, they take no part in controlling their retirement finances (unless they have private investment, but many do not) and rely completely on others to provide for their retirement financially.
Whereas nowadays, Millennials and Gen Zers are required to contribute a portion of their income towards their own retirement provident funds. Their employers may contribute some funds too but employees bear much responsibility in making sure they have sufficient funds for retirement. This major change in retirement fund scheme has caused employees to learn money management and investing because they know that if they fail to manage, save and invest for themselves, they are doomed after retirement. Therefore, a series of personal finances books, courses, materials, seminars arise from the trend to help the new generation master finances for retirement. Due to this new trend and awareness for personal finances, the new generations become more financially empowered than the last and that has given them more confidence facing retirement.
The meaning of work
Another reason millennials and Gen Zers plan to retire earlier is the difference in the meaning of work. In any ways, the meaning of work has changed. More than ever, younger generation under age 40 is known for being more willing to readily change jobs than its older counterparts. Job loyalty is no long meaningful for the new generation, they are indeed looking for challenges and fulfilment in work. For example, many of the younger generation started to turn their passion into income projects during the pandemic, e.g. teaching music online, selling cakes that they bake at home on social media, drawings on bags and shoes etc. It is an obvious trend that the Millennials and Gen Zers are looking for passion in what they do, rather than just working for money solely.
Turning passion into full time income is not easy, that is why many started with side hustle. While we are looking for ways to increase our income, we need to think about how to make use of the money we have on hands — i.e. when we are working, how can we put our money to work as well. Many Millennials and Gen Zers are looking for investment solutions. The limitations are that most of them don’t have much capital to start with, and many are working full time which means that they have limited time to spend on monitoring the market and analyzing stocks. Therefore, the best option for them is passive investing.
What is passive investing
Passive investing broadly refers to a buy-and-hold portfolio strategy for long-term investment horizons, with minimal trading in the market. It is proven that passive investing outperforms active investing.
My passive investment portfolio mostly consists of etfs which are low cost and easy to transact. You can start with as little as $100 and spend as little as 5 mins a month to build and manage a balanced investment portfolio.
I have a course on passive investing which just take you a few hours to learn and you will know which etfs to invest in and how to set up your investment portfolio and utilize it for FIRE purpose. You can learn it in your own time and immediately get started with investing for FIRE right after.