How Millennials Should Save for Retirement - An Open Letter

To my fellow millennials,

We were taught that if you go to school, get a good job with nice benefits and work up the career ladder, you’ll be able to retire and enjoy life. But the world has changed in the last few decades. With student loans looming, changing employee benefits, the prevalent gig economy, lack of job security and the ever-growing amount of money needed for retirement, it’s no wonder we find ourselves asking: will we have to do those side hustles forever? Will we ever be able to retire?

Despite the uncertainty, the way to give ourselves the best chance is to start retirement planning now to protect ourselves in the future. But what about all my other commitments? How much will I need to retire? Where do I even start?

Don’t Let Student Loans Stand in the Way

No one knows about the student debt crisis in our country better than millennials and Gen Z. The reality is more than just a relatable meme on the internet. Some borrowers have benefited from recent loan forgiveness, but as of early 2024, student loan debt in the U.S. still totaled over $1.75 trillion. Over half of bachelor’s degrees recipients in 2022 graduated with $29,400 in debt, and average student loan debt across all borrowers in 2023 was $38,787. With this hefty financial obligation, it is no surprise that more than 50% of Americans say that they have delayed saving for retirement to make student loan payments. 

Yes, that’s daunting. With monthly payments in addition to other bills and inflation, it’s easy to think that retirement is the last concern. Who can think about a time that is 30 or 40 years away when we have loans and living expenses to cover now? Of course, we know deep down that retirement saving is important. But it’s hard to know how to start. 

Take a Close Look at How Much You’ll Need to Retire

How much should millennials save for retirement? The amount we each need to save is a lot more than it was for previous generations. The Baby Boomer generation needed to save around $1.3 million in order to live comfortably in retirement. We, on the other hand, are estimated to need $1.8 million just to maintain our current standard of living in retirement. 

Why do we need so much more? First, Social Security benefits are expected to be much less generous than they are today, and we still don’t know how much money will be available by then.

Second, there’s always inflation to account for. The Federal Reserve assumes a 2% inflation rate per year. Two percent doesn’t sound bad, but 2% every year for the next few decades adds up fast. Plus we could be dealing with periods of higher inflation that will take an even heavier toll on our savings.

Third, we’re expected to live even longer than our parents and grandparents. We can anticipate spending about one-third of our lives as senior citizens. 

All of these factors combined mean that we need to be putting away much more money than in generations past.

Create a Budget and Stick to It

Creating a budget is still one of the best ways to figure out where you’re spending too much and where extra money is going. If you don’t know how much money you’re spending in one particular area, let a free budgeting tool help. Most banks offer budget tracking linked to credit and debit accounts. Apps such as Mint and You Need a Budget could also help track your accounts, investments, and expenses. They allow you to link your financial accounts into one central place and categorize your expenses visually so that you can determine where to cut, how much to cut and what limits you should set for yourself.

Make Small Changes to Live Within Your Means

So, what can you do if you want to start saving for retirement? The first and most obvious step involves spending less and putting the difference into retirement. Look at your expenses holistically and determine what can be cut.

Can you spend less on rent? Cut your Uber trips in half? Go out to eat less often? Get into thrift shopping? Look for opportunities in your everyday life, like skipping the pricey coffee to save around $100 a month and invest that money in your future. Small amounts contributed today have the potential to grow into much larger savings by retirement. What will be more important when you retire, a new sweatshirt or your savings? 

Max Out Your Employer Match

In order to get a head start on your retirement, take advantage of your employer-offered 401(k) plan, a critical element of retirement planning for millennials. Many employers offer some type of matching contribution as part of their retirement plan, usually up to a percentage of your contributions. It’s like free money: you put a portion of your salary into an investment account each paycheck, and they add money to it as well. Industry standards recommend that you should be setting aside 10–12% of your paycheck to such a plan. If your company provides a match, you might not have to set aside the full amount. And deducting it from your paycheck can be done automatically so that you don’t even miss it! It’s also taken out before taxes, which means your overall taxes will be lower, too. 

Figure Out Where To Save

If an employer-offered 401(k) isn’t available to you — perhaps you’re self-employed or starting a business — there are still other options, like traditional IRAs and Roth IRAs. Do your research and consider what kind of options you have for getting a good return on your money so it can compound over time.

Start Saving Today

Once you’ve budgeted and know how much you can save, let those extra dollars do the work for you to maximize your retirement savings. Even small amounts of money, if invested early on, can grow to an impressive amount with time. Having time to let compound interest grow is the most powerful tool that we have.

Get Professional Help

With so many other things to worry about, why not take some small steps to help alleviate retirement planning stress? 

Your local Farm Bureau agent or advisor can help you think through your retirement plan, including understanding your goals and putting strategies in place to help achieve them. You don’t need to have a lot of money to get started — what’s more important is that you start now and use a financial professional to help you along the way. 

Love,

A hopeful millennial