The short answer is the majority of millennials are not saving for retirement. According to one of the largest retirement-plan providers, Fidelity, roughly two-thirds of millennials have nothing saved for the future at all (data based on Millennials and Retirement: Already Falling Short, February report by the National Institute on Retirement Security). However, the smart millennials – like you or someone you know maybe – are doing far better. How? And, what can you do to be one of the smart ones that plan on retiring early?
Boss Man Jax says,
- Target saving at least 15 percent of your income throughout your career and you will have enough to maintain your lifestyle in retirement. Save 20 percent or more and retire early.
- If your employer offers a 401(k) plan, sign up and contribute at least the maximum that your employer will match (free money). This allows you to “pay yourself first” and build wealth automatically. Believe me, you won’t miss the income once you adjust your spending habits. Becoming financially independent is far more rewarding than anything you would otherwise spend that money on early in your career.
- Note that millennials who have been contributing to their employer-sponsored 401(k) plan, consistently for 10 years, have an average balance around $120,000, also according to Fidelity. That’s an average balance, so in 10 years you may have significantly more by taking the right steps.
Saving for Retirement
Signing up for your employer’s 401(k) plan when they match contributions is a no brainer, even if you have student loan debt (in most cases). Should you pay off your student loan debt before starting to save for retirement? That’s another topic we’ll tackle in future posts, but in the interim, read the article on The Street website, Pay Off Student Loans or Save For Retirement? Pay particular attention to the later portion of the article where it quotes Kerry Uffman, the owner of TWRU Private Wealth Management:
Uffman further says paying off debt first uses a linear yard stick as if money’s growth progressions are somewhat flat if observed when graphed, creating the illusion that wealth grows slowly in non-exciting way. “So, why not pay off debt first if money grows slowly?” he asked. “That’s the false illusion because wealth grows sharply — not slowly — but generally after about seven years. So linear thinking individuals might say: ‘Well, I’ll start saving about then.'” Here’s the problem with that says Uffman. “There’s a huge cost in waiting to save,” he says. “A young person just needs to compare the two competing strategies in terms of their financial position in terms of accumulated wealth versus debt levels at these three milestone dates: seven years out, 10 years out and 15 years out. (SOURCE: Pay Off Student Debt or Save For Retirement, The Street).
Hat’s off to Kerry Uffman for doing the math and being so financially smart. Again, saving for retirement requires doing a little homework and paying yourself first whenever possible, for sure.
As of the second quarter of 2018, millennials — which Fidelity defined as those ages 21 to 37 — with 401(k)s had an average balance of $25,500 and were contributing 7.3 percent of their paychecks. Fidelity also found that employers were matching, on average, 4.1 percent, which put the total savings rate for millennials with 401(k)s at 11.3 percent. (SOURCE: Here’s how much millennials have in their 401(k)s, CNBC)
I encourage you to read the articles referenced above, take action today, and sooner than you think you’ll be well on your way to financial independence.