WASHINGTON —The goal of many Millennials—to retire early—could put the Federal Reserve into a “nightmare” scenario in the event of future economic troubles, according to one new analysis.
Noting numerous providers have targeted Millennials with messages promoting investment programs to help them retire early, the New York Times pointed to Prudential as one example. That company has run advertising stating, “They say Millennials are lazy. Retire early and prove them right.”
But the flip side would be the “Federal Reserve’s nightmare,” the Times reported. “A young generation of aggressive savers could leave central bankers with less room to cut interest rates, which they have long done to boost growth in times of economic trouble.”
As CUToday.info reported here, one quarter of Millennials now say they have more than $100,000 saved (another quarter have no savings).
“To leave the work force early, Millennials would need to build up massive retirement funds and consume less in the process,” the Times stated. “That hit to demand could slow growth and force rates to drop ever lower to entice spending. And if today’s workers actually managed to retire young, it would exacerbate the situation by shrinking the labor force, further weighing on the economy’s potential.
Lesson Not Learned
“Millennials, who are roughly between the ages of 24 and 39 and have not lived through pronounced price spikes, already have the lowest inflation expectations of any adult generation,” the report continued. “Their belief that costs will not increase could eventually slow actual price gains by making it hard for businesses to charge more. The Fed’s main interest rate includes inflation, so that would leave it with even less room to cut.”
Added Joseph Gangnon, an economist with the Peterson Institute for International Economics, “It would lower interest rates — that’s certainly true. It would be a double whammy: It directly raises savings” and “it would further reduce the need to invest in factories and offices for these people.”
The Times report cited data from T. Rowe Price that found of Millennial workers with an active 401(k), 43% expect to retire before the age of 65. For Generation X — often defined as those aged 40 to 55 — that figure is 35%.
The movement around early retirement uses the acronym FIRE, for Financial Independence, Retire Early, and is dedicated to frugality in pursuit of quitting the work force as soon as possible.