Millennials have a lot on their mind.
Relationships, travel, furthering your education, where to live, whether to buy a house or rent, whether to stay in your current career or switch, and how to spend your free time are just a few of those things.
Retirement isn’t even on the radar of most millennials.
Today I want to discuss the unpopular topic of retirement for millennials, and trust me I mean to keep it simple.
The most important thing for millennials when it comes to retirement is this: get started!
Retirement for millennials doesn’t have to be complicated. I don’t think millennials want to spend a lot of time thinking about retirement – nor do I think they should. There is hardly enough time and energy for the countless priorities in their lives.
The beauty of retirement savings for millennials, though, is that you don’t have to put a lot of time into it. The only thing you have to do is get started. Getting started will put you far ahead of others in your demographic, and even some that are much closer to retirement.
I’m sure most of you reading this have heard the advice that you should opt into your company’s 401k policy. This is definitely the first thing you want to do when it comes to retirement, assuming you have the option. I wrote a detailed post about how to opt into a 401k plan over at FeeX on this topic.
If you don’t have a company 401k plan, it’s time to look into getting an IRA. This is where most millennials – and others – fail. Just because your employer doesn’t offer a 401k plan doesn’t mean you have an excuse to not save for retirement. Roth IRAs are great options for people who fall in this category. In the past I have explained the benefits of contributing to a Roth IRA. I would highly recommend you check this out if you haven’t started saving for retirement.
Once you have a 401k or IRA (or both) set up, it’s important to set up automatic contributions. Regardless of what percentage of your income you decide to devote to savings in your 20s and 30s, if you simply get started by setting up automatic contributions you don’t have to spend your precious time thinking about retirement. That’s the beauty of the set it and forget it approach to retirement savings.
Because I fall in the middle of the age range for the millennial demographic, I naturally have a lot of friends and acquaintances that are millennials. I know there are quite a few people who do not contribute anything to a retirement account, and it really is unfortunate.
The money that is put in a retirement account in your 20s and 30s is extremely valuable because it has so much time to compound and increase in value. That’s why simply getting started and putting something into a retirement account will greatly benefit millennials when they near retirement.
What do you think about this advice? Am I oversimplifying the issue or do you think this is the perfect advice for those in their 20s and early 30s? What are your thoughts on retirement savings when you are (relatively) young?
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I don’t think you’re oversimplifying it at all. It really is a simple step to take and definitely the most important one. Signing up for my employer’s 401k has still been the best financial move I’ve made yet. Watching it grow over the years has given me motivation to improve my finances in other areas. And if you’re lucky enough to get an employer match – that’s free money!! Sign up and get it!
You’re right on the money DC. Save at least 10%, but preferably 20%, 30% or even 40% if you want to become financially independent sooner. Live on your current salary, and when you get promoted and experience salary increases, save the difference. I know retirement seems like a long time off and you love your job and want to work for a long time. I did too. But once you reach your 50’s, it would be nice to have options. I wish I had received this advice earlier in my career.
We didn’t start saving for retirement until our late 20’s and I wish we would’ve started sooner. I can’t imagine how much more money we would have! Oh well.
Completely agree with the point on automating it. By doing this, it takes away the planning of when to make contributions and how much you should make this month compared to next. By automating it, you are simplifying retirement savings and only need to review it maybe once every quarterly, bi-annually, or annually.
Spot on here, DC. In spite of our debt load, we are very lucky that we started saving for retirement early. It really can make the difference between financial success and financial failure.
Great points…I’m glad that I started contributed to my 401k plan right after getting my first job and also opened an IRA also. In the beginning the account was pretty small and the stock market wasn’t doing that great at the time, but I’ve been rewarded by being consistent. Now in my mid 30s…(or can I say late early 30s!!) I really see the magic of compounding at work.
When starting out, the only thing that really matters is your savings rate. The investments themselves are ancillary since, by definition, the amount you have invested is small. You can fix that later. As you said, just get in the habit of regularly investing.
Yep, totally agree. Compounding interest is your bestest friend! Starting to save early not only puts your 401K in the best position, it also create a habit of saving that will hopefully translate into other aspects of one’s financial behaviors. Thank you for this!
My advice is to take the maximum amount of free money (employer matches, etc) and then use all the rest of your funds to stockpile money for major life purchases in your 20s and 30s (vehicles, house downpayments, weddings/cost of kids). There are so many capital acquisitions, which come with high interest rates if you have to debt finance them (not always, sometimes it makes sense to leverage those) that getting a solid footing at a young age is important. Of note, this does not mean “don’t save” it means ensure your savings are being deployed efficiently.
Getting started is great advice because so many people procrastinate because they don’t understand investing or it makes them nervous or they don’t they need to start now. And the one almost everyone tells me – is they wished they would have started sooner.
The Barefoot Budgeter The employer match is really nice and I love seeing those matching funds going into my account each paycheck. I think signing up for and making contributions to your employer’s 401k is one of the easiest and most impactful financial decisions people can make.
debt debs Great point about having options later in your career. I think a lot of people in their 50s think “if only I had saved more, earlier.” I think the percentage you save is going to vary greatly depending on how much you make. Saving 50% of your income for retirement if you make 100k and have no student loans is a lot different than saving 50% of your income for retirement if you make 40k and have student loans.
Holly at ClubThrifty I think a majority of people don’t start saving until their late 20s, so I’m sure there are many others who are in your spot. It seems like you guys have really “figured out” your finances and you likely will leapfrog most others out there, if you haven’t already.
Thias @WealthHike Automating your retirement contributions can be a huge “winner” long-term. I know that I personally have loved not having to think about retirement savings but can rest assured that each paycheck there is some money going into my account.
Laurie TheFrugalFarmer The issue with NOT saving, even if you have debt, is that even if you pay off your debt you still haven’t saved anything for life AFTER your working years. I think it’s something everyone should get in the habit of ASAP.
I think that millennials need to work on saving first and that number is 10-20% of their incomes, and then figuring out which bucket the savings goes into next. In my mind, the first priority is an emergency fund. The second is life goals like marriage, a home and kids. Once they feel as though they have those areas covered, then they need to focus on retirement. For most people now, retirement is more like 50 years away. There is a lot of life to live in those 50 years and you don’t want to create financial burdens by not having cash available along the way.
Andrew LivingRichCheaply Great to hear, Andrew. I’m still very early on in my working life, so my account is not that impressive. With that being said, the consistency has really paid off for me as well.
DonebyForty I really don’t look at my asset allocation in my 401k. I think I’ve adjusted it about 2 or 3 times in the past 4 years. I think simply getting the money in there consistently is important.
Mrs. Frugalwoods Your welcome, thanks for stopping by and commenting! I think the habit is the most important part. The size of your 401k will likely feel pretty small the first 5-10 years, but that habit of saving money will stick with you for the rest of your life.
moneypropeller I actually think most of those major purchases come with VERY favorable interest rates, less than you would make in the stock market (on average). I have a post on this very topic next week. I disagree with you on this one, but that’ll happen from time-to-time : )
ShannonRyan I think pretty much everyone regardless of how old or young they are will one day say “I wish I had started saving/investing sooner.” It’s incredible how many times I’ve heard that!
blonde_finance I am with you on the emergency fund, but I also think that if you don’t at least contribute the employer match you are missing out on free money. Waiting even one or two years to start contributing will hurt you in the long run. Maybe you should write a post on it? : )
I really hate the fact that I waited so long to open a Roth IRA. I was never employed by a company that offered a 401K, otherwise I would have started with that. Honestly, had I not been reading PF blogs, I might not have known to open an IRA. So glad I did now, and completely agree that millennials just need to start small. It doesn’t have to be complicated.
Some plans offer 1 to 2% step up every year where your contribution automatically increases. I’m a huge proponent of maximizing your 401K as 6 to 10% isn’t enough.
I have to admit, I’m 30, and I haven’t given retirement very much thought. It’s one of those things that I keep thinking “I’ll get around to it eventually”, and I just never do. I should probably take action on this soon!
As a 40 year old, I can say without a doubt, START EARLY. I could be retired by now if I had. When you first start working, that’s the most excited you’ll ever be about your career. Once you have a family or have been at it for a decade or longer, it just becomes work for most of us, even if we don’t hate our jobs. The ability to walk away if you wanted would be absolutely amazing.
DC @ Young Adult Money moneypropeller Sometimes, indeed. Car financing rates have gone down in the last few years. Once fees are factored in, a lot of my friends were paying over 10% a few years ago.
Well said DC. I started at 26 and feel like I was behind on it. I would love to go back and get started when I was 18, 21, or even 24. Can’t make up for lost time.