YOLO: You only get one shot at life, but also one shot at saving for retirement
The millennial generation has been dubbed the “you only live once” (or YOLO) generation, walking a considerably different path from the Baby Boomers and GenXers. Instead of spending money on the white picket fence home or saving for retirement, most tend to live for experiences.
Maybe it’s backpacking through Europe. Or yachting the seven seas. Maybe they’re frequent hosts of elaborate, elite parties. Or they live out of their RVs or campers, like nomads searching for the perfect place to settle.
Whatever their decision, this YOLO generation has inspired a new movement – causing many to pack up their lives and live differently. If I’m honest, I find it quite inspiring. It tugs at the heartstrings, giving me hope that I, too, can mold the life that I want. It’s a generation driven by the emotion that only freedom can elicit.
But what is the future cost of living for the “here and now”?
What are the stats?
According to a survey conducted by Northstar Research Partners and Expedia Group Media Solutions, the YOLO generation seems to prioritize travel experiences.
Millennials take, on average, 6.5 trips each year, with an average of 6.2 days spent on each trip.
The Baby Boomers and GenXers took fewer trips (3.5 and 4, respectively), but averaged a longer duration of 7.8 and 6.4 days, respectively.
When asked about why Millennials travel so frequently, respondents noted that they desired “once-in-a-lifetime experiences” and ticking off bucket-list items. These reasons preceded the importance of travel discounts or finding the lowest price, suggesting that their budget wasn’t a primary concern.
Another survey, conducted by QuestionPro, asked similar questions to 400 people across different generations. The findings were quite similar, with a few additional insights:
Millennials primarily considered three main factors when traveling: the optimum time of day for travel, familiarity with airlines or hotels, and whether non-stop flights were available.
In contrast, previous generations primarily considered finding the best deal (whereas only 9% of Millennials thought this was important to consider).
A Millennial Travel study, focusing on LGBTQ participants in the US, showed the following:
- 40% of respondents reported traveling every quarter, with 25% traveling each month.
- Over 50% give themselves 3-6 months to save for the trip.
- The average Millennial (whether LGBTQ or not) spends around $4,594 per year on travel, with each vacation costing around $1,312.
84% of Millennials reported having below $50,000 saved for retirement, compared to the 53% of Baby Boomers.
A third of Millennials believed that $200,000 would be enough to retire (except, this would last for less than 4 years at the average American household spending rate).
From these surveys, it is clear that those who take part in the YOLO movement value present experiences over saving for the future. What this means, however, is that many have unrealistic expectations of what would be needed to retire comfortably.
Is YOLO a method of escapism?
So, why do Millennials value the YOLO lifestyle so much?
Well, the Northstar survey mentioned earlier provided some insight into why. According to their findings, Millennials are in a constant search for relaxation. In fact, 83% reported the desire to disconnect from their busy lives and engage in all-day relaxation experiences, whether this involved napping on the beach or visiting the spa.
Could it be that this generation is trying to escape the stress and demands placed on them by their jobs? Studies actually support this, showing that, compared to older generations, Millennials have the highest stress levels (reported as way above average).
Maybe this isn’t surprising given the high-paced, rapidly-changing and “always-on” nature of millennial careers these days. Couple this to the fact that most Millennials struggle to take time off, thinking it could be perceived as lazy or as a lack of devotion to their work.
It’s a recipe for stress-induced disaster. And the underlying motivation to search out a more simple, less complicated lifestyle. Enter YOLO.
So, why am I bringing this up? Because if we want to address the effect that the YOLO movement is having on retirement savings, we need to understand why the movement exists in the first place.
Are we jeopardizing our shot at saving for retirement?
Okay, so we have a theory as to why Millennials live the YOLO lifestyle. But what are the downstream consequences of embracing it?
Well, one thing that many people don’t appreciate (or realize) is that youth is your greatest asset when saving for retirement.
The $4,594 that the average Millennial spends on traveling in a year could grow into a pretty healthy nest egg. In fact, it would equate to $244,662 if you started saving at age 25 and retired at 65. This assumes a conservative interest rate of 10% per year, all interest reinvested with no additional contributions.
However, let’s say you decided to spend your first 10 years out of college traveling (YOLO, or solo). And you only started saving for retirement at age 35. Your retirement nest egg would reduce to a much less impressive $90,380 – more than half in value.
Don’t get me wrong. I don’t want to be the Grinch who stole vacation. But I think it’s important to realize just how valuable time is. It’s important to find a balance between enjoying the life you’re living now and the one you want in the future.
You’re not young forever. And the years you lose in retirement planning can never be recovered financially (unless you win the lottery or land yourself a pretty sweet job). So, spend that time (and money) wisely.
How to find balance between YOLO and saving for retirement
The body is exquisitely designed to maintain balance. It should be no different for our present and future selves. Below are a few strategies you could use to ensure that you live in the moment, but also plan ahead financially.
1 | Taper the Travels
Based on the surveys that I’ve mentioned, Millennials spend boatloads of money on travel. It’s understandable. It’s the perfect way to escape the stress of your 9-to-5, while taking in the sights, sounds and smells of new and exotic places.
But, ask yourself, do we really need to be traveling, on average, 6.5 times each year? Maybe you don’t – kudos to you!
But if the average American Millennial were to travel half as much as they do, they’d pocket almost $2,300 per year. If you were to funnel that cash into your retirement annuity each year, do you know how much you’d end up with after 40 years? I’ll let this graph speak for itself:
By simply tapering your travels, you can balance your desire to see new places and experience new things with a future that is secure and more certain.
2 | Turn your guilty pleasures into goals
The main drawback of embracing the YOLO movement is that you’re always living in the moment. This makes the future an afterthought.
Don’t get me wrong. I’m not suggesting you give up YOLO-ing altogether. I’m simply asking that you consider budgeting for these experiences, rather than going out on a whim.
Do you want to make an international trip each year? Then, come January 1st, set yourself a goal to fund it.
Are you hoping to rent an RV for the Summer and take a roadtrip from the east to west coast? Then, figure out how much you’d need and get to work saving for it.
By setting yourself goals, you’re not only giving yourself direction, but you’re also allowing yourself the freedom to enjoy some of these guilty pleasures along the way.
| Always question your motives
Are you getting itchy feet to catch a cab to the airport and book the first ticket out of the city? Take a second and ask yourself why.
Is it because you’re feeling particularly stressed at work? Are you trying to catch a break from your family or friends? Has a recent heartbreak left you picking up the pieces of your life, looking to be as far away from your ex as possible?
We can convince ourselves to do some pretty extraordinary and spontaneous things to escape our circumstances.
But ask yourself: are there better, more cost-effective ways to deal with your situation?
4 | Visualize yourself in the future
I know – it’s hard to picture yourself in 20 or 30 years time. Who knows if you’ll still even be around. Why should you waste your time saving money for retirement when the future isn’t guaranteed?
But the opposite is also true. What if you’re still alive and kicking at the age of 75 or 85? What then? Would you still be enjoying the kind of freedom you are right now? Or would you be struggling to get by each month, relying on your kids for support?
Visualizing your future can be a pretty big motivator for saving for retirement.
Make it clear to yourself what you value and what is important to you. Picture the life that you want to live when you’re not earning a regular income. Remind yourself of everything you want to do and achieve when you hand in your notice.
And then ensure that your budget reflects these priorities.
5 | Live 70-80% of your best life forever
If you want to keep things simple, consider the following: at the beginning of each month, save 20-30% of your income and live your best YOLO life on the remaining 70-80%.
Pay yourself first. Give yourself the gift of peace of mind. And then use the remaining balance to fund whatever lifestyle you want (as long as it doesn’t cause you to dip into debt).
When you think of it this way, saving for retirement sounds a lot more manageable. And it still allows you a healthy balance to fund the experiences you want to enjoy right now.
What’s the take-home message?
The YOLO movement embraces short-term happiness at the risk of losing long-term freedom.
But life is all about balance. You don’t need to give up completely on the life you want now to secure a comfortable retirement. And you don’t want to jeopardize your retirement to fund your current elaborate lifestyle. Find the balance and you’ll be YOLO-ing your way all the way into retirement.
Have you experienced the struggle of balancing your YOLO lifestyle with saving for retirement? Comment below and let me know what these struggles are and how you’ve begun to tackle them. Have any strategies been particularly useful?
O'Hagan is one of Personal Finance's New Voices and his finance blog is called the Saving Scientist.