Millennials haven’t had the smoothest financial path and many still feel unsure if they are saving enough for retirement. With high student loan balances, high housing costs, and a series of economic shocks throughout their working lives, it’s no wonder this generation has difficulty determining a realistic savings goal.
Planners say millennials need frameworks that are simple enough to follow but flexible enough to adapt as their income grows. Here’s what they advise their millennial clients to save for retirement and how to stay the course even when life gets complicated.
Experts agreed that millennials should save consistently, but the approach may vary. Christopher Stroup, CFP and owner of Silicon Beach Financial, encourages millennials to save 15% to 20% of their gross income for retirement. “It’s simple, realistic and resistant to professional changes and market cycles,” he said.
Jay Zigmont, CFP and founder of Childfree Trust, on the other hand, focuses less on savings percentages, which “do not reflect personal considerations,” and instead uses “milestones.” Saving for important goals makes saving easier. Prioritize paying off debt and building an emergency fund first, and then you can make steady, consistent contributions, he added.
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Benchmarks help millennials measure whether they are on the right track even when income fluctuates. “In general, I recommend aiming to earn once (your) annual salary by age 30, twice by age 35, and three times by age 40,” Stroup said.
Zigmont is most concerned about millennials getting out of debt first, but once that’s done, ideally when you’re 30, “you should max out your 401(k)” when you’re 40. Both approaches recognize that retirement savings in the early years can be limited by debt and instability, but it is important to reach certain thresholds in midlife.
While the rules of thumb give millennials a starting point, these planners have slightly different approaches. Stroup plans backwards from the client’s preferred lifestyle and estimates a 3.5% to 4% withdrawal rate during retirement. Zigmont uses “Monte Carlo simulations” that run numerous different outcomes to account for taxes, long-term care needs and other variables. Personal spending, not income, is ultimately what determines the true savings goal, he said.
For millennials who feel behind, both planners emphasized that the solution is strategic recalibration, not getting caught up in shame. Zigmont assured: “Anyone who feels like they are behind or starting late should give themselves a little grace.”
However, grace is not enough to retire, so eventually adopting a smart savings plan is key. That may mean temporarily increasing savings by 20% to 25%, redirecting bonuses or compensation into stock, or slightly extending your working years. “These measured adjustments help them regain momentum without straining cash flow,” Stroup said.
As millennials face higher costs of living, both planners emphasized that even reduced contributions will have an effect. Consistency matters more than a fixed amount if you don’t have much to save.
During high spending seasons, even contributing enough to capture the employer match is better than nothing until your income increases, Stroup said. “High fixed costs mean we focus on maintaining consistent contributions, even if they are less than ideal,” Stroup said.
However, it may also be necessary to take a closer look at your expenses and restructure your budget. Zigmont said, “If you are living paycheck to paycheck, something needs to change, which often means paying off your debt as a priority or moving to an area with a lower cost of living.”
Both planners agree on something that is non-negotiable: never leave the employer’s matching money on the table. If millennials can’t save more, incremental increases tied to raises or automation can help them get ahead without a budget hit.
“The minimum is what captures the employer’s total, as it is essentially a guaranteed return,” Stroup said.
Stroup believes many millennials assume they can catch up later or wait for the perfect moment, but this is a mistake. I think the biggest mistake is thinking that you should retire at 65 (which) is not a magical age,” Zigmont insisted.
Stroup said he sees people assuming they can “save more later” when expenses, particularly health care expenses, increase with age.
The antidote is to emphasize consistency and long-term planning, not timing the markets or waiting for life to get easier.
Longer life expectancies and the rising costs of long-term care mean that millennials will need to plan for more years of retirement than their parents. “Many millennials will likely live into their 90s, so planning for a retirement in their 30s is becoming more normal,” Stroup said. That requires bigger savings sooner and stronger investment strategies.
Zigmont emphasized that he is not ready to retire until he has a long-term care plan, whether to pay for it on his own or purchase long-term care insurance.
No matter where millennials start, planners agree that consistent habits and personalized strategies are what ultimately make long-term retirement goals a reality.
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This article originally appeared on GOBankingRates.com: Retirement Planners: Here’s What I Tell My Millennial Clients to Save for Retirement
