Many Millennials grew up during the economic boom of the 90s and were able to reap its bounties during childhood. Today, however, adult Millennials are faced with a very different world. Even though the recession is in the past, many of the underlying economic problems continue to fester—and those problems put Millennials in a tight spot when it comes to saving for retirement.
In fact, quite a few Millennials do not expect to be able to retire at all. According to one survey, around a third of Millennials expect to work into their 70s. One in eight Millennials stated that they expect to work until they drop.
If you are in this boat, you probably are quite concerned about your future, and rightly so. Many Millennials never will be able to kick back and enjoy their golden years without worrying about work. But that does not mean that you cannot still work toward retirement. In fact, if you are diligent (and perhaps a bit lucky), you may very well still be able to retire.
Here are 5 tips to help you save money so that you can relax and savor the fruits of your efforts during your golden years.
1. Accept the reality of the situation.
First of all, why do some Millennials expect to retire while many others do not? There are many different factors at play. Some Millennials got a flying start in life while others languished jobless during the recession. Others may have high incomes. But many expect to retire on the inheritance passed down to them by their parents in future years.
There are two reasons this is not a realistic approach to dealing with retirement savings:
- Not everyone has an inheritance coming their way.
- If you are a Millennial parent and you are counting on your parents’ inheritance to pay for your retirement, what are you planning to pass down to your own kids for theirs? You have their futures to think about too.
Over half of Millennial parents have $5,000 or less saved up. More than a third have $1,000 or less. Think how quickly you can burn through $1,000. That is one or two big car repairs, or one large medical or dental bill. If either or both parents end up out of work, it would be possible to blow through those savings in a month or less.
This is why the first step to saving for retirement as a Millennial is to accept the hard reality that you cannot lean on your inheritance. You need to save up your own money to retire, especially if you want to pass something onto your children.
2. Cut back on expenses as much as possible.
Did you know that around a third of US Millennials are living at home with their parents? While the idea of living with mom and dad may not be appealing, these Millennials are on the right track. It’s a great way to minimize or eliminate rent bills, and that means saving more money.
Not everyone has this option of course, but there are other ways to cut back on bills. Downsize to a smaller house or apartment. Install solar panels if you own your own place. Ditch your cable TV subscription. Hang your clothes out to dry instead of putting them in the dryer. Hand wash your dishes instead of throwing them in the dishwasher. Learn to cook your own meals and make cheap soups and casseroles that last for days.
3. Pay off debts.
Your next priority is to start paying off your debts as efficiently as you can—student loans, credit card debt, auto loans, and so on. The faster you can get your debts paid off, the less interest you will have to pay off over time. If you prioritize paying off your debts, it could save you thousands of dollars over the years to come.
While you are at it, look for opportunities to refinance and consolidate your debt, which can lower the interest rates you are paying now. You might also be able to find friendlier terms all around, cutting back on fees and other costs as well.
4. Create a retirement account.
Another thing that Millennials can do to save for retirement is open a retirement account. There was a time when employers sponsored pension plans in diverse industries, but those days are behind us.
Your company may offer a 401(k) plan. You are responsible for that investment if you choose to participate (in other words, it is riskier than a traditional pension plan), but that is no excuse to skip out. Don’t have a 401(k) available? Try an IRA (a good option if you are self-employed). Here is what should be in your 401(k) if you want to retire comfortably. It is never too late to get started, but the sooner you do, the better.
5. Invest online.
Another option for building up savings for retirement is to invest in the stock market for the long-term. With the rise of online brokerages and low-cost index funds, this is something which Millennials can now do affordably and conveniently on their own with just a simple 3 fund portfolio. Many of DIY brokerages offer low commissions, low minimum deposit, and investment amounts. This can help Millennials to start investing early, even if they don’t have a lot of money.
6. Invest in themselves.
Finally, if you do not know what you should invest in, one good rule of thumb is always to start by investing in yourself. Millennials should always be on the lookout for opportunities and should take an active role in expanding their personal and professional networks. They should participate in affordable ongoing educational programs, and should never settle into a rut when it comes to climbing the corporate ladder or participating in the gig economy.
Opportunities are few and far between these days when it comes to salary raises. That is exactly why it is so important to be ready to seize on a chance when it presents itself, even if that means taking on a new responsibility or stepping into a different role at work.
Saving for Retirement is a Challenge for Millennials, But Not Impossible
There is no beating around the bush; saving for retirement is an extremely difficult undertaking for the Millennial generation. Wages are low, inflation is mounting, pension and healthcare benefits are severely lacking, and it is still common for a qualified professional to end up out of work for six months or more at a time.
But this is no reason to give up. It is instead a reason for Millennials to buckle down and work harder than ever toward their retirement. Be smart and diligent, and you may find that you can retire and have some wealth to pass down to your children.