In a recent study performed by Charles Schwab, millennials were asked when they plan on retiring. The average answer? Age 60. Interestingly, this is 7 years before they would be eligible for full social security benefits.
The question is whether this optimism is matched by an actual plan for how to achieve this, and statistics tend to show otherwise. Currently, it is estimated that about two-thirds of millennials have nothing saved for retirement. Those that are saving, have an average 401(k) size of $25,500 according to Fidelity.
The problem is, many millennials feel like they just simply can’t afford to start saving for retirement. Between education costs, student loans, and entry level wages, some have children to feed, some are planning a wedding, or trying to pay their own rent or mortgage, they are simply scraping by. It's understandable!
While the vast majority are not currently saving anything, another interesting piece of data shows that out of those millennials who are eligible for an employer retirement plan, 96% of them are contributing to it. 96%!
76% of young adults aged 16-25 believe they’re headed for a better financial future than their parents, 81% plan to own a home, and 53% are counting on an inheritance from mom and dad.
So, what does all of this data say to us? It says millennials are optimistic about their future, it says they are willing to save when presented with the opportunity. It says they believe retirement and a prosperous future is ahead of them, but it also says the majority have not put a solid plan into place to get there.
It is a shame because millennials who put together a plan to start saving now means their dollars have more time to compound than if they wait, meaning they are leaving a lot of money on the table. In other words, saving now puts millennials in the best position to reach their lofty retirement goals, but many seem to be unaware!
For millennials who might fall into the category of not knowing where to even begin, here are a few tips!
1) Use technology to start saving
There are many apps that can help with saving. Some of these apps take your purchases and round them up to the nearest dollar, placing that change into a separate savings account.
An app called Chime helps you allocate a certain percentage of each paycheck automatically into a savings account and round up everyday purchases by a certain amount, placing the difference in savings.
An app called Digit looks at your income and expenses and makes a recommendation on how much you could be saving.
Clarity Money is another one you might check out. It takes a look at your monthly expenses and makes recommendations for things you might be able to cut back on.
2) Set bite size goals
Retirement looks different for everyone and, because of this, there is no one-size-fits-all approach when it comes to retirement planning. That said, you probably have no clue what your eventual retirement looks like, you just know you’ll need enough to survive. So start by taking a rule of thumb. Fidelity says aim for 10x your desired income. This is probably a bit low in our opinion, but it is a place to start.
So if your desired income is $100k, start saving up to a $1 million. This sounds intimidating, right? It isn’t so intimidating if you start breaking it down by the years. For example:
By age 30: Have the equivalent of your desired salary saved
By age 35: Have 2x your salary saved
By age 40: Have 3x your salary saved
By age 45: Have 4x your salary saved
By age 50: Have 6x your salary saved
By age 55: Have 7x your salary saved
By age 60: Have 8x your salary saved
By age 67: Have 10x your salary saved
This way, as you approach your retirement years, and your desired lifestyle in retirement comes into clearer focus, you’ll at least have a nice nest egg already built up as a starting point.
3) Have a plan
We can’t say it enough. Financial planning isn’t a one-time thing. Financial planning is sitting down and mapping out a way to take you from point A to point B, then revisiting it throughout the years as your life changes.
You might be embarrassed about where you at. Perhaps you’ve accumulated a significant amount of student loan debt, or you feel late to the game with saving. Maybe you make a good income but you’ve matched your lifestyle to your income with no space in your budget to set anything aside. The important thing is being intentional about understanding where you’re at now, and how you’ll get to where you’re going.
As always, we are here to help if you have further questions. We will never turn down an opportunity to talk with someone looking to get on track with their savings goals, even if it is just a quick phone call. We are here to help!