Generation squeeze: Why Millennials should start preparing for retirement now

Real Money, a free weekly newsletter giving expert tips on how to save, invest and make the most of your money, is sent every Sunday. You’re reading an excerpt − sign up to get the whole newsletter in your inbox.

As a generation, Millennials cop a lot of flak. First from older generations – usually with some mumblings about avocado toast or work ethic – and recently from our younger Gen Z counterparts, who think we’re cringe or whatever.

As an official “cusp” Millennial, I like to pretend none of this criticism applies to me, and that I’m not cringe at all but actually extremely cool and relatable. Plus, at least I actually know how to use a computer.

Millennials could be the first generation who may need to financially support their parents and their offspring at the same time.Credit: Aresna Villanueva

But if we move past my delusions and into the world of facts, the truth is that Millennials are facing a serious problem. Dubbed the “generational squeeze”, a recent survey by financial advisory Findex found half of Millennial Australians believe they’ll need to support their family members. One third believe they’ll need to support their elderly parents, and one fifth say they’ll have to support their children.

What’s the problem?

While the bank of mum and dad is renowned for handing out loans to children, Millennials could be the first generation that needs to support their offspring and their parents at the same time, a daunting prospect for a generation barely managing to afford the rent. Indeed, one in every five Millennials said they were not confident in their ability to support dependents in retirement.

What you can do about it

If you’re in this boat, there are some things you can do now to prepare yourself:

• Understand your super: Yes, I’m talking about super again and, no, I won’t apologise. But rather than just blindly adding to your super, which is common advice for younger Australians, financial adviser and Fox and Hare founder Glen Hare instead recommends sitting down and really getting to know it. “The vast majority of the people who reach out to us have very little understanding of their super,” he says. “They don’t know the fees they’re being charged, the construction of their portfolio, or the genuine tax benefits associated with superannuation.” Don’t make additional contributions without knowing what you’re actually investing in, Hare says, also noting that most funds will put members in a balanced portfolio, where younger members might actually be more suited to a growth-focused portfolio. You can find out all you need to know about your super and allocations through your fund’s online portal. It’s also worth checking your fund’s performance and comparing it with others, and thinking about switching if it is underperforming.

• Be mindful of debt: As a generation who grew up at the same time as buy now, pay later services boomed, Millennials can sometimes be a bit too comfortable taking on debt. This will not only dent your earning capacity now but can also have ramifications far into the future, depending on the level of debt you take on. This is particularly relevant when thinking about property, Hare says. “If you’re in your 30s and borrowing the maximum amount where you can only make the minimum repayments, you’re going to be paying that debt off until you’re 60 or 70 years old,” he says. “You’ll have no capacity to build wealth elsewhere, you can’t make additional super contributions, you can’t start investing.” Think carefully about the long-term implications of any loans you take on, and ensure you’re going to be able to comfortably service them.

• Listen to your parents: Taking action now before you have to start financially supporting your parents can help you prepare for what may be needed, Findex co-chief executive Matt Games advises. “You need to know how they are placed, whether they’re likely to need to depend on you in the future. You might even get a nice surprise that they’re better off than you thought,” he says. In a similar vein, he suggests putting some time in your diary to sit down and plan and prepare. “Do your budget, set some short- and medium-term objectives. Do some research on a better deal for your home loan, or your insurance, or whether you need the five streaming services you have,” he says.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.