Trustnet Magazine Issue 21 September 2016 | Page 12

YOUR PORTFOLIO HELP FOR HIPSTERS The media stereotype of the Millennial with an endless supply of disposable income overlooks the fact that many of them have little or no retirement provision, writes Daniel Lanyon W HEN THE FIRST MILLENNIALS WERE BORN, Apple cofounder Steve jobs was a bearded 25-year-old with stretched finances and an uncertain future. Thirty years later he was one of the richest people alive. It seems unlikely the financial future of most Millennials will be so prosperous. For many Millennials – defined by researchers Neil Howe and William Strauss as anyone born between 1982 and 2004 – their smartphones, chai lattes and Instagram feeds full of holiday snaps belie a hazardous truth: many are broke and unable or unwilling to save for the future, particularly for their most important but least glamorous pot of cash: their pension. The scale of the problem is considerable. For anyone aged between 20 and 35, life expectancy ranges from between 85 to 105. Research by BlackRock suggests there is a lack of understanding among this generation that, while they will be retiring later than their parents, they are likely to face a longer period of time in which 10 to fund both the routine costs of living and care in ill health. At the same time, other research shows that the average Millennial has eschewed pension investing in favour of experiences, the cost of living and saving for a house deposit. NOT THE WORST IDEA Bank of England chief economist Andy Haldane recently said that the latter may not be the worst idea as the young could potentially earn more from housing than their pension. But what about the power of compound interest, I hear you ask? The stark truth is that you are always better off starting your pension early. Imagine two people. One starts saving the same amount every month at 21, stops at 35, and is constantly invested in a portfolio with annualised returns of a modest 7 per cent. The second starts at 35 and stops at 65, saving the same amount every month and with the same annualised returns. Thanks to compound interest, the first will be significantly better off at 65 despite paying in to their pension for half the amount of time.