Millennials: Here's the best way to spend your tax refund

MYB: Not saving enough for retirement
MYB: Not saving enough for retirement

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Story highlights

  • Kylie Patterson: Millennials are not saving nearly enough for retirement
  • Since neither the federal government nor the stock market can be relied on to provide sufficient support, they must start saving more than ever

Kylie Patterson is the senior program manager for the Racial Wealth Divide Initiative at CFED, a nonprofit focused on expanding economic opportunity, and a participant of the Allies Reaching for Community Health Equity Public Voices Fellowship with The OpEd Project. The views expressed in this commentary are her own.

(CNN)A shiny new TV. A trip to a tropical island. Season tickets to a sports team. These are the ways some of my friends and fellow millennials have told me they plan to use their tax refunds.

It's the choice about 17% of millennials are making, according to a survey by GoBankingRates, a leading provider of personal finance news.
And what about the rest of millennials? Some 54% are planning to use their return to pay off debt, while 29% will put their refunds in savings. But this may not reflect millennial prudence as much as a desire to free ourselves from thousands of dollars in student loan debt.
Kylie Patterson
Even with some financial conservativism, we are not saving enough for retirement. According to the Natixis 2016 Retirement Plan Participant Study, millennials are saving far less than the recommended 15% of income. For those of us who are saving, we are only setting aside 1% to 4.99% on average.
We must change course now -- investing more and at higher percentage rates. Neither the government nor the stock market can be relied on to provide sufficient support.
Although the federal government currently provides Social Security benefits for many, including those who have retired, political and financial realities cast doubt on our ability to "cash in" when we are older. According to the Pew Research Center, Social Security's combined reserves will be fully depleted by 2034 if current trends continue, and if Congress fails to make adjustments to the system.
To make matters worse, the stock market is projected to grow, but nowhere near the rate of growth experienced in the 1980s and 1990s. And, yes, the Dow did just break the 20,000 points ceiling. But many economists feel that the current market rally is vulnerable to surprise dips due to shifts in market confidence, nationally and globally.
However, this warning is not just for millennials. It is for the millions of people with little to no retirement savings and who continue to choose not to save. According to an analysis by the Economic Policy Institute, the median working-age family has saved only $5,000 for retirement, and nearly half of families have no retirement account savings at all.
And this uncertainty hits African-Americans and Latinos hardest of all. About 65% of white non-Latino families had retirement savings in 2013, compared with just 41% of African-Americans and 26% of Latinos. Worse yet, African-Americans and Latinos continue to experience higher rates of unemployment (the white unemployment rate in the 1st quarter of 2017 was 4.3%, compared with 8.1% for blacks and 5.9% for Latinos) and underemployment (7.2% for whites, compared with 10.8% for Hispanics and 14.5% for blacks).
To be sure, it is difficult to save for retirement when you are unemployed or underemployed, and this may account for some of the difference in retirement savings between racial groups. But there is a way to overcome this hurdle, and that would be to take advantage of unexpected windfalls -- such as a tax refund, and to always save when you are employed (even if your employment is temporary or seasonal).
Building retirement savings is like building a new home, brick by brick, dollar by dollar. It is better to start saving now, even a little, than to put it off.
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In practice, this means finding out how much you should save to retire comfortably, taking some of your refund and placing it in an individual retirement account (IRA), and if your employer provides a 401k plan with a match, contributing enough of your pay to trigger the match (it's free money!).
Retirement savings isn't sexy. It doesn't generate Instagram photos that get lots of likes or Snaps that hundreds of friends view. But it's precisely what we need to think about now, when we are still able to work and contribute to our retirement.
Tennessee Williams summed it up perfectly when he said, "You can be young without money, but you can't be old without it."
So put that tax refund into a savings account today!