Slow start, shaky future for millennials

CINCINNATI -- A swipe through her phone's personal finance app tells Jessica Sebastian all she needs to know about retirement.

Seven more years to pay off $44,000 in student loans. At least a few years to get out from under $20,000 in credit card debt. A 401(k) with less than $4,000. And a personal savings account that's one broken-down car away from being emptied.

All this, despite saving on rent by living with her parents in the same room she slept in as a teenager.

Jessica is just 28, still a long way from her golden years, but she doesn't need the MBA training she completed two years ago to see she's already fallen behind.

"Retirement?" she says. "Right now, it looks like a pipe dream. It's like seeing a unicorn."

Jessica's plight is about more than her own retirement. She and millions of other millennials are caught in a chain reaction that's redefining retirement in America.

Fundamental workplace and cultural shifts are changing the way we approach financial security in the latter stage of life. The consequences sway the entire economy and everyone who's part of it, not just those already retired or working hard to get there.

Ultimately, the changes may be most significant for the youngest workers, who came of age in the shadow of a financial crisis, a housing bust and a job-crushing recession. Now, they're beginning their adult lives with less wealth and more debt than their parents or grandparents – and little hope of the secure retirement that generations of Americans took for granted.

Many, like Jessica, are starting slowly and earning less, often taking jobs for low pay or accepting unpaid internships just to get a foot in the door. One-third are living with parents or are financially dependent on them.

They've delayed marrying, buying a house, having children. And that's costing the economy untold billions in lost spending on baby clothes and cribs, home sales and furnishings, big-ticket purchases and stock investments.

"They're already in a big hole," says Julie Heath, executive director of the University of Cincinnati's Economics Center. "That affects them, but it also affects the rest of us. If they're not moving out of Mom and Dad's basement, all the grown-up things that follow aren't happening."

Jessica knows this as well as anyone. She finally landed a good job in marketing last year, but the climb is steeper and longer than she'd imagined after graduating from college in 2008.

If she doesn't make the right moves in the next few years, she might be playing catch-up for decades.

"I'm way, way, way behind," she says.

Less for savings, home, family

Jessica isn't desperate or destitute. She has a $50,000-a-year job and considers herself lucky to have a family with the means to help her through these times. Poor and less educated millennials are in a far tougher spot, usually working for lower pay and fewer retirement benefits.

Still, Jessica is far from where she wants to be.

She holds two degrees – a bachelor's in communications and an master's in business administration – and she's pursued internships and jobs with an eye toward a career that could sustain her well into retirement.

But the numbers on her personal finance app are a constant reminder of how far she has to go. And how much she has in common with millions of other millennials.

According to the Pew Research Center, the median net worth of a household headed by someone younger than 35 in 1984 was $12,132 in

today's dollars. Now, it's $6,815.

That's a 44 percent drop in the real value of savings, real estate, stocks, bonds, cars and other assets. It means young people aren't doing what young people typically do to build both personal wealth and the overall economy.

It means they're not spending and investing, which has a ripple effect on employment, 401(k)s, home values, contributions to Social Security and other things the rest of the population is counting on to secure a reasonably comfortable retirement.

"It has a significant effect," says Richard Fry, a senior research associate at Pew. "For young people starting out, it's about getting the career started, getting the income. Until they can get their income up, they really can't save much."

Saving $25 a month

Some nights, after climbing into bed with the family cat, Rocko, Jessica can hear the sound of pounding drums and screaming guitars rising through the vents in her room.

Her 23-year-old brother, Zach, is at work in the basement, where he's converted an oversized closet into a studio. Zach, a recent college grad, also lives at home. He has a day job repairing dental equipment, but on nights and weekends, he works long hours recording bands and mixing songs for his fledgling recording studio business.

Jessica just does her best to ignore it, while imagining the day she'll have a place of her own.

It feels like a long way off.

"I can hear it all night," Jessica says. "But no rent is a blessing. I'm very grateful for my parents."

There's a downside, of course. She's 28 and feels sometimes as if she's leading two lives: The hard-working professional, who runs all day from meeting to meeting, and the girl who has to consider how awkward her date might feel picking her up at her parents' place.

But Jessica isn't crashing here indefinitely. She has a plan.

The goal is to put some of her paycheck into a 401(k) while setting aside as much as she can every month to pay down her debt. The rest of her salary covers bills and expenses. She's done the math, and at her current pace she should be free and clear by age 35.

If all goes well, she'll be out of the house long before then and will have started a small but important retirement nest egg. Living at home, at least for a while, makes that plan possible.

"It allows me to put more toward my debt," Jessica says. "There is light at the end of the tunnel."

She realized she had to start saving more a few years ago when she played around with a "retirement calculator" to figure out how saving money now translates into retirement money later. After learning so much about money and business while studying for her MBA, Jessica was curious about her own finances. What she saw scared her.

As any financial planner knows, the value of money grows tremendously over time when invested properly. Someone who gets a late start, even by just a few years, may never catch up.

"Those early years are gone," says Ed Finke, a financial adviser at

Simply Money in Cincinnati. "You can't go back and redo them."

The price of those lost years is great. Finke uses this example to get the attention of young clients:

One twin sister starts investing $5,000 a year in a Roth IRA at age 22 and then stops at 30 without ever saving another dime. The other sister starts later, at age 31, but invests $5,000 every year until she is 67.

Who ends up with more money? The answer: With a 10 percent annual return, they both will have just less than $1 million. But the sister who started early and stopped at 30 will have a bit more. If returns are consistent, those first nine years are worth more than the next 36.

"It's an amazing difference," Finke says. "It's that crazy value of money over time."

Decades ago, getting an early start didn't matter so much because young people often began careers with a company that set aside money for them in a pension.

Today, the number of companies offering pensions has fallen from 112,000 to 23,000 since 1985, creating a do-it-yourself retirement system in which employees set their own 401(k) contributions and try to place wise bets on other investments.

Many simply aren't doing that. The median value of 401(k) plans today for households headed by someone 25-34 is just $9,177, according to Boston College and Vanguard. This, despite warnings from financial planners to start early and increase contributions as soon as possible.

"That's very difficult for people to deal with," says Casey Boland, an investment adviser with Hengehold Capital in Blue Ash. "It's a form of delayed gratification, and we as a society find that hard."

For millennials like Jessica, though, the problem isn't necessarily a desire to spend the money now instead of investing it for the future. The problem is not having much to invest.

Jessica itemizes her expenses and income every month and sets aside a substantial share for student loans, her credit card debt and other bills. Aside from her 401(k), she's left with about $25 a month in savings.

"I don't even have a rainy day fund," she says. "That scares me more right now than retirement."

Rude awakening after graduation

At Jessica's graduation ceremony from Ohio University in 2008, just as the nation was sinking into recession, her grandfather marveled at the thousands of students passing by with diplomas in hand.

"Where are all these kids going to work?" he asked.

Jessica wasn't too worried. She'd done well in school and had earned real-life work experience by getting the kind of internships that in the past had led to full-time jobs.

The rude awakening came quickly. Companies were laying off workers, not hiring them, and Jessica began to feel she was sending her resumes and cover letters into a black hole.

The low point came when she was a finalist for a job in Chicago that paid $35,000 a year. Her two competitors both had MBAs.

She didn't get the job.

"Right out of the gate, it was obvious it was going to be competitive," Jessica says. "I just didn't know it was going to be that competitive."

She was working for Gap at the time, making minimum wage. Her belongings were packed away in boxes in her parents' basement. She felt she was losing valuable time.

Jessica's solution was to go back to school to get her MBA, something she'd hoped to do after establishing her career. She knew it would mean taking on student loan debt, and she knew that would set her back in saving for a house and retirement.

If she did nothing, she reasoned, she could be stuck in retail for years and face the same dilemma when she was approaching 30.

"It's one of those degrees that will have a return on the investment," Jessica says. "Long-term, it was going to pay for itself."

At least that's the hope.

Student loan debt has slowed the progress of thousands of millennials who are trying to get a foothold in the job market and start saving for retirement. The debt burden is so great that some politicians and economists question how much bang students are getting for their buck.

Still, higher education matters. Pew found millennials with only a high school diploma earned a median annual pay of $28,000, compared with $45,500 for those with a bachelor's degree. And according to Forbes, graduates of top business schools earn about 50 percent more after getting their MBA.

There are no guarantees, especially in an economy as uncertain as this one. But Jessica felt it was a risk worth taking.

The gamble paid off last year with a good marketing job at Acosta in Sharonville. Now, though, comes the hard part of digging out while also establishing her career and saving for the future.

The task is complicated by the additional credit card debt she racked up while going to school. "I was in the hole most months," Jessica says. "When you're accumulating student loan debt and using your credit card to stay afloat, it snowballs."

In business, less loyalty

For many millennials, including Jessica, the early setbacks have meant approaching work and retirement differently than their parents did.

Despite the debt many carry, primarily because of student loans, millennials tend to be more financially conservative, according to a recent UBS survey.

Their view of the economy is more in line with the World War II generation that grew up in the Great Depression than with their parents, and they're more likely to hold cash than invest in stocks or real estate.

"It was harder for them to get jobs, so they're more cautious," Boland says.

Employment worries aren't the only reasons millennials don't save for retirement the way their parents did, though. The economy has changed, and young workers are adapting.

Companies and workers are less loyal to one another than they used to be. Layoffs are more common, and young workers expect to hold multiple jobs during their careers. They are more likely to invest in themselves than in a particular job.

"They're free agents," says Dan Schawbel, founder of Millennial Branding and the author of two books on young professionals. "You have to be about what's the next thing. You always have to have something else going on, even if you have a full-time job, to protect yourself.

"It's a continuous job search."

'Delayed adulthood'

For a long time, Jessica didn't think much about retirement or, really, about anything but getting her career on track.

Lately, though, she's noticed a change. Retirement isn't imminent, of course, but she and her friends talk more these days about planning and saving for something other than paying off student loans.

Jessica first noticed this shift on her Facebook feed, where the posts are no longer just about the frustrating job search or weekend outings in Over-the-Rhine. It's now sprinkled with news of friends getting engaged, getting married and moving in with significant others.

A few have posted photos of "baby bumps," heralding the biggest life change of all.

"Everyone is starting to settle down," Jessica says.

It's happening later than it did for most of their parents, however, at least in part because of the economy. Young workers today start earning the median annual wage of $27,500 at age 30, according to a Georgetown University study.

That's four years later than in 1980.

"It's delayed adulthood," Schawbel says.

The later start, along with a longer life span, means millennials will likely work more years and may continue even after they've "retired," however they come to define that word.

Jessica is starting to think about her finances in more personal terms: "If I want to pay for my kids' school, when that time comes, I'd like to not still be paying off my school."

Her goals for her career, family and, ultimately, a secure retirement are still ahead of her, not quite within reach. She feels she's getting closer, but she feels the urgency, too.

Especially on those nights when she sits in her room, now with two college diplomas on the wall, listening to the music pouring in through the vents.

"I know I have some time," she says. "But not a lot of time."