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Millennials,born between 1981 and 1996, are used to struggling with competing financial priorities–but that doesn't make saving for retirement any easier.
Many millennials entered the workforce just as the Great Recession slashed the job market. Even when employment rates stabilized, most employees' wages were lower than pre-recession levels. While paychecks stagnated, expenses rose. Cost of living, housing prices, and health care expenses have all increased during millennials' prime earning years. It's no wonder that retirement savings often take a 🐈backseat.
As many millennials hit mid-career, they're starting to feel like the retirement savings runway is getting short. But despite the bumps along the way, there's still a clear path forward: consistently setting aside 15–20% of pre-tax income can lead to a comfortable retirement.
Key Takeaways
- Millennials should aim to save at least 15% of their pretax income for retirement.
- Savings benchmarks, such as 1x salary by age 30, help assess progress.
- Employer-sponsored plans like 401(k)s significantly impact retirement savings.
- Asset allocation is crucial, with equities playing a key role in growth.
- Social Security's future is uncertain, necessitating alternative planning.
Understanding Retirement Savings Needs
A general rule of thumb for retirement savings꧂ is to save 15-20% of your pretax i🦂ncome annually. But is that target right for you?
How much you need to save for retirement depend🥀s on your timelines, goals, lifestyle expectations, and the rising cost of livi🍸ng. Inflation can impact your retirement savings as increasing prices chip away at your nest egg over time, meaning your savings will need to stretch even further.
While 65 is the traditional retirement age, that rule is written in pencil, not ink. Some millennials plan to work well into their 70s in some capacity, while others hope to clock out for the final time at 50. With longer life expectancies than previous generations, millennials may be retired for 30 years or more, making ꧅inflation even more important to 💯consider.
You'll need to do back-planning to determine if 15–20% is enough. Most experts suggest replacing 70–85% of your pretax income to maintain your lifestyle in retirement. That number could go up or down based on your vision: Does retirement look like your life now, just with fewer meetings? Are you traveling more? Splurging on a dream vaca🌃tion home or once-in-a-lifetime adventures?
If yꦓou’re a millennial with your eyes on retirement, the insights on this page and the articles linked from it h༺ave been expertly curated to help balance these factors and support your financial future.
How Life Impacts Planning
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Savings Benchmarks by Age
The ultimate goal is to have 8 to 10 ꩲtimes your working income in savings by the time you reach retirement age. But how do y𝄹ou get there?
Even if you've set money aside since your first paycheck, it's hard to know whether or not you're on track with your retirement savings. To simplify things, financial experts generally agree on setting age benchmarks for retirement savings goals to ensure you're on the right savings path.
Fidelity recommends saving at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.
| Fidelity's Retirement Savings Guidelines by Age | |
|---|---|
| Age | Annual Salary |
| By 30 | 1x annual salary |
| By 40 | 3x annual salary |
| By 50 | 6x annual salary |
| By 60 | 8x annual salary |
| By 67 | 10x annual salary |
Impact of Employer-Sponsored Retirement Plans
According to the most recent Transamerica retirement survey, millennials value 澳洲幸运5官ﷺ方开奖结果体彩网:employer-sponsored retirement plans, like 401(k)s, as part of a benefits package more than any other generation. As many as 87% of respondents said that access to retirement plans would sway their decision in accepting a job offer.
Contribution limits for 401(k)s are higher than many other savings vehicles, and millennials can set aside up to $23,500 annually in these accounts. 401(k)s have another major perk: many employer-sponsored retirement plans match employee contributions up to a threshold. These matching contributions are essentially "澳洲幸运5官方开奖结果体彩网:free money" employers pay toward♍ retirement goals, and they're a great way to supersize savings. For example, if your employer matches contributions up to 5%, you can double your savings and hit 10% without any extra money from your check.
Options for Self-Employed Workers
12% of millennials do not have access to 401(k) plans either because their employers do not offer them or because they're self-employed, gig, or freelance workers. If you find yourself in this camp, 澳洲幸运5官方开奖结果体彩网:you still have options.
Individual retirement accounts (IRAs) are an excellent starting point for retirement savings. However, the contribution limits are much lower, at $7,000, so reaching the requisite 15% of your annual income may require you to get creative with your savings with a mix of retirement and non-retirement accounts.
In addition to IRAs, self-employed workers may be able to open and contribute to SEP IRAs, 澳洲幸运5官方开奖结果体彩网:SIMPLE IRAs, or 澳洲幸运5官方开奖结果体彩网:solo 401(k)s. These self-employed retirement accounts have higher contribution limits and allow you more flexibility in your investment choices.
Tip
Opening and maintaining these accounts can be more complicated than just hopping into an employer plan, so it's always a good idea to consult a financial professional to ensure you follow the rules.
Investment Strategies for Millennials
Your risk tolerance, goals, and timeline should drive your investment strategy, but generally speaking, the longer you have until you need the money, the more risk you can take in your portfolio. Since the youngest millennials today are not quite 30, and the oldest millennials are only approaching their mid-40s, there are still a few decad⛎es between most millennials and retirement, allowing them plenty of time to maximize retirement savings with some basic strategies.
Equity investments, like stocks, mutual funds, and ETFs, can help grow wealth if you have the time to weather the market fluctuations. Think of fixed-income investments like bonds, treasury securities, a🐼nd certificates of deposit (CDs) as your porℱtfolio anchor.
To determine an appropriate allocation of equity investments in your portfolio, you can use a simple formula: 120 minus your age. For young millennials, 𝓰that may mean that as much as 90% of their pꩵortfolio is in equity investments. For the elder crowd, that's still 75% to 80% equity and only 20% to 25% fixed-income investments.
Tip
澳洲幸运5官方开奖结果体彩网:Target-date funds adjust your ass𓃲et allocation as you near retirement from growth-focused to more conservative investments. These funds help investors' portfolios stay appropriately allocated for their retirement timeline.
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澳洲幸运5官方开奖结果体彩网:Alice Morgan / Investopedia
Economic a🧸nd Social Factors Affecting R🦩etirement Savings
Millennials have weathered their share of economic storms in their relatively short working lives. Despite setbacks, many still prioritize retirement savings while supporting families, juggling student debt, and managing rising living costs. Yet some social and economic factors beyond millennials' control may impact what the future they're building for themselves might look like.
Job stability is a consistent, legitimate worry for millennials after many entered the workforce during the Gr𝓡eat Recession, and even more were affected by the financial impact of the pandemic.
Today, increased global competition and automation are some of the biggest threats to job security, threatening long-term earning potential and savings for an already impacted generation.
How Marriage Impacts Retirement
The Role of Social Secu🎀rity in Retirement Planning
Seventy-six percent of millennials are not confident that Social Security will still be around when it's time for them to retire. These concerns are partly due to the possibility of changes in legislation and the strain on the system from the growing number of Americans relying on Social Security.𓃲
More than 4 million Americans will turn 65 each year through 2027. These late boomers are less likely to have pensions than their older generational cohort. They're also likely to have increased life expectancies, and thus draw from Social Security coffers for longer.
It's unlikely that Social Security will va♛nish entirely by the time millennials retire, but it may look di🐟fferent than it doe♒s today. That's why it's smart to plan as if you won't get a dime—so if you do, it's a bonus and not a lifeline.
Investing In Your Future
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Creating a Personalized Retirement Savings Plan
No two people are the same, and no two retirement savings plans should be the same, e🧸ither. To create a personalized retirement savings plan, s💞tart by accounting for factors like your desired lifestyle, life expectancy, and inflation. Use that information to set a rough yearly income requirement and plan backward how to get there.
It's critical to reassess needs and check progress regularly. In doing so, you can realign your portfolio allocations with your current risk tolerance, goals, and timeline in mind and check to ensure you're on track.
Given the competing financial priorities many millennials face, keep savings goals realistic. If you fall behind, you may need to increase your savings, reimagine🐈 working at least part-time in retirement, or postpone retirement to meet your financial needs.
Remember, retirement planning is not about perfection; it's 澳洲幸运5官方开奖结果体彩网:about progress, and small steps get you closer to the life you imagine.
What Is the Expected Retirement Age for Millennials?
The traditional retirement age is 65, but some millennials plan for an earlier retirement. Earlier retirements and longer life expectancies may require more aggressive saving and investing strategies to meet retirement savings needs.
Will Millennials Get Social Security?
As of now, millennials will receive Social Security benefits at retirement age, but the future of Social Security may evolve as more Amer🀅icans reach retirement age and strain the program. Millennials should plan for the possibility of reduced Social Security benefits by prioritizing personal retirement savings.
How Can Millennials Balance Student Loan Repayment With Retirement Savings?
Managing competing financial priorities such as student loan repayment and retirement savings can be challenging, but striking a balance is one of the smartest financial moves you can make. Start by tackling high-interest debt while still contributing what you can to retirement savings. As your debt shrinks, increase your retirement savings. It's a great way to take care of your future without neglecting today's responsibilities.
What Are the Best Investment Options for Millennials?
Millennials still have a lot of time before they retire, so equity investments are some of the best options for a large percentage of a millennial's portfolio. Examples of equity investments include stocks, mutual funds, and ETFs. As millennials approach retirement, they will want to move away from equity investments and reallocate those funds to fixed-income investments like bonds, government securities, and CDs.
The Bottom Line
The key to success in investing is starting early and staying consistent. Many millennials are prioriti๊zing retirement savings more than previous generations did. Still, they're also strapped with higher student loan debt and rising livinꦕg expenses while gꦰrowing their families.
To maximize retirement savings, millennials should take full advantage of employer-sponsored retirement plans, especially when they have matching employer contributions and stay consistent. As they approach retirement, it is important to stay proactive about appropriate asset allocations, keep realistic savings goals, and remain flexible as circumstances change.
More Advice
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