A new report by Mercer, a global consultancy firm, has found that millennials who have been priced out of home ownership throughout their career will have to save significantly more than homeowners to have a reasonable income in retirement.
According to the Mercer Retirement Readiness Barometer, lifelong renters must save eight times their yearly salary to retire at 68. In comparison, millennials who are homeowners only need to hold five times their salary to retire at 65.
Mercer’s analysis assumes that the millennial worker, with a starting salary of $60,000, enjoys a total contribution of 10% of their monthly salary to a savings plan.
The research defines retirement readiness as “a 75% probability of not running out of money before death.”
The report outlines the many financial benefits of homeownership, including lower living costs and the option to cash in on downsizing or equity release. But it’s not that “generation rent” doesn’t know the benefits of investing in homeownership — they simply can’t afford to get on the property ladder.
It is no wonder that millennials might be a little envious of their better-off older counterparts, the baby boomers. The generation is wealthier and continues to enjoy the returns on its real estate investments.
It is the decades of real estate appreciation, which lined the pockets of the previous generation, that has priced many millennials out of homeownership, earning them the nickname “generation rent.”
At the same time, renting can hardly be described as an affordable alternative.
According to the Rentals.ca 2023 rent report, asking rents for all available property listings increased by 1% monthly and 10.8% annually to reach an average of $2,004 in March.
Mercer’s retirement figures are based on the assumption that workers start to save at 25. So regardless of your age, it seems it’s never too soon to start planning for retirement.
You can find out how much you need to save for retirement and if you are on track to reach your savings goal using Sun Life’s free Retirement Savings Calculator.