Millennials typically live in the “here and now.”
With retirement decades away for those in their 20s and 30s, retirement planning is simply not a priority.
The problem with this mentality is that it can drag on for years or even decades. The Motley Fool shared this shocking retirement statistic:
A whopping 29% of workers say they have not saved for retirement at all. Regardless of whether or not they have saved for retirement, 48% have no stocks or stock mutual funds, either inside or outside of a workplace retirement savings plan.
While retirement planning at a detailed level may be difficult for millennials, there are certain aspects of retirement planning that can be prioritized.
What I want to focus on today is 3 retirement planning priorities for millennials. If you focus on these 3 things in your 20s and 30s you will be well ahead of others when you are in your 40s and 50s.
1) Get Started with Automatic Contributions
Saving for retirement in your 20s and 30s can have a big impact on your quality of life in retirement. A dollar invested in your 20s is more valuable than a dollar invested in your 50s because the dollar in your 20s has more time to benefit from compound interest. In short simply getting started with saving for retirement will be extremely beneficial.
The first thing millennials should do when it comes to retirement planning is open a retirement account and set up automatic contributions. If your employer offers a 401k or 403b retirement plan it typically is very easy to set up automatic contributions each paycheck. The benefit of being on an employer retirement plan is that they typically will match contributions up to a certain percentage. Make sure you contribute at least that much or you are missing out on “free” money.
If you’re self-employed it will take a little more effort on your part to get set up. What I recommend is that self-employed individuals look into getting an IRA as soon as possible and have automatic contributions made to their account from their checking account every couple weeks.
2) Increase the Amount Contributed Over Time
Besides getting started, it’s important to increase the amount you contribute to a retirement account over time. My main tenant of retirement planning, namely “get started,” gives people a pass on how much they are contributing. After all, contributing even 2% of your income is better than none at all. It’s important to slowly increase this percentage over time; especially if you’re in your 20s or 30s.
There are some very practical ways to do this. For example:
- Raises/Increased Income – When a raise or promotion happens, don’t let it all be lost to lifestyle inflation. Instead increase the amount you contribute to your retirement account.
- Debt – Finally finished paying off your student loans? Use a portion of this new cash flow to increase your retirement contributions.
Whatever you need to do to increase your retirement contributions over time, do it! While increased income and recently paid off debt are two great sources of cash flow for retirement savings, they certainly aren’t the only sources of retirement funds. Take a hard look at your finances from time-to-time and ask yourself: can I divert additional funds to retirement accounts?
3) Make time for Retirement Planning
Let’s face it: making a detailed plan for something that will happen 30+ years down the road seems about as realistic as accurately predicting whether a Republican or Democrat will become President in 30 years; there’s too many unknowns.
Instead of focusing on the unknowns of retirement, focus on what you do know: your goals for retirement. Do you want to have the same income in retirement as you currently do? Plugging the amount of income you desire in retirement into a retirement calculator can provide you with a lot of information as far as how much you need to save each month from now until retirement. High-level planning is possible, even in your 20s and 30s!
But what about time? There are a lot of changes that happen within a short period of time for those in their 20s and 30s: buying a house, starting a career, getting married, having children, graduate school, etc. Who has time for retirement planning?
What may be surprising to many is that a basic retirement plan can be put together in as little as 15 minutes. Setting aside even a few hours a year can help you be much better prepared for retirement than you ever thought possible.
How much time and effort do you think people in their 20s and 30s put towards retirement planning as opposed to other financial goals (i.e. paying down debt, advancing in careers, etc.)?
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I wish I had started making automatic 401k contributions when I was in my early 20s. I didn’t really start until I was in my mid to late 20s!
Getting started is so important. I’m glad that I made it automatic…I didn’t really miss it because I never saw the money in my paycheck. It went straight into my 401k plan. Sure, it wasn’t impressive in the beginning but compounding really works some magic. I do wish that I had increased my contributions more though rather than be happy with “contributing up to the match.”
We have automatic contributions, but at a very low percentage since we are so deeply in debt right now. If we pull back the throttle on debt repayment in the future, some of money would need to go retirement. One of my greatest fears is that the debt repayment takes so long that we have to put all the money that went towards debt to retirement savings to still retire in our 60s, aka never “getting ahead” of that mid-60s typical retirement age.
Generally speaking, I’d say far too many don’t spend enough time on it. I know I was certainly guilty of it myself and now working to make up for it. I know it can be overwhelming if you don’t know where to start, but the best way to get started is to just go with something automatic and throw it in a quality index fund if you don’t know where to start. At the very least it’ll get you started and will give you the time needed to allow everything else to work out.
Holly at ClubThrifty That’s still pretty early! If you get started at all in your 20s you are far ahead of others in your age group when it comes to retirement savings.
Andrew LivingRichCheaply I did the same thing. I never missed the money going into my 401k contributions because I never really saw it in the first place.
brookepftwins I hear you, Brooke. I’m biased towards contributing more towards investments/retirement than debt unless the interest rate is excessive. With that being said, many disagree with me and think that it’s best to get rid of debt as quickly as possible.
FrugalRules I agree John – simply getting started and putting the funds in an index fund is much better than doing nothing at all. I think it would be great if colleges or even high schools had some sort of financial planning course that gives everyone a background knowledge of what to do after school.
What ever happened to Gen Y? For all these years I thought that was me, but it seems we’ve been sucked up and grouped into the Millennial group.
I regularly hear from clients how they wished they had started their retirement savings much earlier. It’s hard when you’re in your 20’s because retirement seems so far away and you have more immediate concerns – paying off student debt, buying home, etc. But like you said, if you can even put just a tiny amount in your 401k (ideally enough to get a company match if your company offers one) you’ll be glad you did and can increase the amount as your salary grows and you eliminate your student debt. It’s amazing what a difference it will make in the long run.
I would tell people in their 20’s and 30’s to invest more then they think they can. If it doesn’t hurt a little, you aren’t saving enough. I could easily have double the money in my retirement plan, if I’d spent less on stuff and more on the future. You can make up for it if you wait, but it takes so much more effort trying to play catch up.
If you do not plan for retirement, you are definitely on a 40 year plan. If you plan, you can cut it down to 30 years, possibly less if you are totally focused.
Cutting it to 20 years is near impossible, unless you are 110% focused, every minute of every day. Or have rich relatives.
Hey DC, as always actionable and thoughtful tips here! :)
I’d say that people in their 20’s and 30’s put very little time towards their retirement planning compared to other financial goals.. I’m not sure I’ll plan for “retirement” persay myself either, I plan more for financial freedom to be able to do what I’d like with my time i.e. holidaying, helping out charities etc..
An area that millennials probably should spend more time on though
Generally I’d say 20-somethings don’t put enough toward their retirement, but if they’re investing in themselves (e.g. additional schooling for a more lucrative career, expected career growth) I’d say that’s probably a decent enough ROI to compensate.
I really wish I would have been focused on my 401k a few years ago. I left a lot of money on the table. I’m glad I’m doing better now.
Mark@BareBudgetGuy Haha, it’s interesting how age groups are defined. It can become pretty messy if you are on the edges ;) I am staunch in the middle of the millennial group, so my life is easy in that regards.
ShannonRyan It really is incredible what an impact it can have. I have by no means put a large amount in my 401k, but I have set up automatic payments from the beginning. 4 1/2 years into my career, I’m pretty happy to see a decent nest egg being built.
Eyesonthedollar Wise words, Kim. I think you’re right that “if it doesn’t hurt you aren’t saving enough.” I think one issue with those in their 20s right now, though, is that student loans DOES make monthly financials painful, so I think getting started with even a small amount going into a 401k is a success.
No Nonsense Landlord Great words. It really does seem to be difficult to retire early, and I’m not sure it’s even desirable. I would love to – on paper – be able to retire but will likely continue working into my 60s in one way or another.
mycareercrusade Financial freedom is a great goal! I think people should start thinking of retirement in those terms. Having the option to retire is a HUGE benefit from a career/work perspective because you literally have nothing to lose. You can take more risks at work and pursue opportunities you otherwise would not be able to.
taylorqlee That’s a good point, and something I’m personally struggling with recently. I am about to start studying for the GMAT but the cost of an MBA is pretty huge. With that being said, the obvious goal would be to leverage an MBA for higher pay. The potential ROI is huge.
Jason @ The Butler Journal Thanks for sharing your thoughts, Jason, and for being honest. I think everyone wishes they had done something earlier, but learning from the past and adjusting future choices is the best we can do.
I am currently 28 and have been putting 5% of my income into a 401k since I was 21. I never really paid much attention to it until recently when I became more focused on my finances. On the other hand, my husband is 30 and has no retirement savings whatsoever. I guess we are on opposite sides of the millenial spectrum, lol. I think most people my age don’t really think about the future, they are just trying to get by and enjoy life. We are currently focused on paying off my husband’s student loans and our truck, but after that, I hope to put more into my 401k and work on getting my husband to set up a Roth IRA or something.
BeckyBierbrodt Yes, people in their 20s can vary greatly as far as how much time and effort they’ve put into their retirement planning (or whether they’ve even started). I think it’s awesome you have 7 years of 5% contributions under your belt, and I’m sure you are happy with the balance you are seeing in your 401k account!
Cheers for the excitement in that feedback there DC! I’ve actually been thinking about it over the past couple of days and it will really mean that I can work 3 or 4 days a week, splitting between coaching and running a not for profit and then spending the rest of the time on fitness, with friends/family and learning :)
Give me a few years and I’ll get there, by that stage you’ll be taking over Dave Ramsey ;)!
mycareercrusade That sounds like a great life, Jef! I have no doubt you’ll succeed!