Millennials will need to be very thrifty in their younger years if they want to have a retired life resembling that of their parents. Although all financial advisors agree that millennials need to put aside more money for retirement than baby boomers, every advisor has a different opinion on what that dollar amount should be.
For example, Matthew Illian, who works for the Investment Committee at Marotta Wealth Management, advised millennials to try and save $7 million for retirement. Why does Illian suggest such a high price? Well, Illian’s model assumes that there will be a 4.5 percent annual inflation rate for the next 45 years. The inflation rate today is only 1.4 percent, and it wasn’t near 4.5 percent since before the financial crisis in 2008. So, Illian’s model could be read as a worst-case scenario.
If inflation does, however, skyrocket to 4.5 percent soon, and if it remains there till millennials reach retirement age, then that $7 million will provide a millennial with around $45,000 every year. Illian notes that most people who retire nowadays withdraw around $40,000 each year and live quite comfortably. However, folks retiring today only need $1 million in savings to afford that lifestyle with current inflation rates.
In contrast to Illian’s model, Robert Powell of USA Today said that millennials who were born in the 1980s should put about $1.8 million away. For millennials born in the 1990s and 2000s, Powell suggests striving to reach $2.5 million. Powell says these numbers can easily be reached within between 30-40 years if millennials put aside between $1,000-$2,000 each month.
Powell believes millennials should really heed the call to put away a few thousand diligently every month. Powell believes the pensions and Social Security programs of today, if they still exist, will be far less robust in the future. Also, most medical authorities believe that the millennials will live longer lives than the baby boomers currently do.
Millennials who want the best of both these models can simply shoot for $5 million in their retirement plan. Although this number may seem daunting to some, it is not so scary after some initial planning.
No matter how much a person decides to aim for in their retirement plan, the first step a person should take is to write down current monthly spending habits. While prices and expenditures will change over time, this will give a good indication of how much a person should aim for in retirement savings.
If people don’t want to write these figures down on paper and figure them out with a normal calculator, they can always use the Internet to help them. In fact, there are many useful retirement calculators online that can help a person clarify his/her retirement needs. These calculators will take into account a person’s age, monthly expenditures, and yearly salary to give a great retirement savings estimate.
Although these plans are great to have, we must remember that we’re only human. Most of us will make a few financial mistakes along the road to retirement, and these should be accounted for as well. Financial advisors actually suggest writing down your retirement goals on one sheet of paper and then posting it on your fridge. It may seem silly, but people who do this are often more disciplined and, hence, make far fewer financial faux pas.
One major issue for millennials nowadays is debt, especially student debt. Financial advisors say that millennials nowadays need a plan to pay off these debts as soon as possible. With college prices going up, and with higher paying job prospects going down, millennials need to be very wary before taking all those loans onboard. If there is no way to pay off these debts, then the experts say it is far better never to take them on in the first place.
So long as millennials live within their means, invest early and often, and create multiple streams of income, there should be no problem reaching their retirement goals. Although it may be more challenging than the baby boomer generation, it is not impossible for millennials to plan for a bright retirement.