One Million Dollars–Really! The Challenges Millenials Face when Saving for Retirement

The financial debacle of 2008 that lead to the Great Recession of 2009 forced many people into de facto retirement, in many cases, totally unprepared. Why? Procrastination!

Let’s be honest, most of us view retirement as an event to be so distant in the future, it is difficult to muster any sense of urgency. Because the weak recovery has dealt a serious blow to employment options, millions of baby-boomers with little in the way of retirement savings are facing limited opportunities to fix the problem.

I wish I could offer some dazzling 3-point-plan to remedy this—sadly, I cannot. What I can do, however, is respectfully suggest that Generation Y (a.k.a. the Millennial Generation) take a lesson from the plight of many boomers. The millennial demographic should develop a retirement plan … now!

Retirement Goals

While goals are important, realistic goals are of greater importance. The Dr. Evil mindset, as I call it, suggesting that you need one-million dollars or more to retire is, in my view, counterproductive and in many cases … overwhelming.

It is much more constructive to focus on what percentage of your take-home pay you can set aside for retirement and make saving/investing decisions that complement the percentage you have selected as your goal. Having a million bucks at retirement would be a wonderful thing but focusing on that as your goal can limit your opportunities to exceed that goal, or worse, be so overwhelming as to cause you to throw up your hands in despair and give up altogether. Neither outcome is a desirable one.

A Few Tips

  • Get your financial house in order, which means getting your debt at a level that allows you to commit some percentage of your take home pay to retirement.
  • It may seem obvious, but saving is a stepping-stone to investing. You must have money to invest and logically you acquire that seed money by saving.
  • Be realistic with regard to the percentage of your take home pay that you can commit to your retirement plan.
  • Define your retirement liability. In other words, what your housing, transportation, medical and other costs will be in retirement. This is going to depend on where you live geographically, and what lifestyle you choose to lead. Don’t forget to factor inflation into the equation.
  • Make sure you invest rather than speculate. While investment inherently means risk, it can be mitigated to match your tolerance for loss.
  • Keep yourself financially informed. Knowledge gives you the power to make the best financial decisions and adjust your investment portfolio to changing conditions. Keep up with trends in health care costs, inflation, changes to social security and tax policy, for example.
  • A diversified portfolio is the best hedge against loss. For the majority, that means investment in mutual or exchange traded funds.

Can’t Rely on Social Security as Your Plan “B”

Surprisingly, a study reveals that nearly 50 percent of the millennial generation does not believe social security will exist when they reach retirement. Given this level of pessimism, it is unlikely that generation “Y” is relying on social security to meet their financial needs at retirement.

The study also indicates that while 42 percent of millennials surveyed have retirement savings, they are only able to set aside a median of about $75 monthly. A total of 52 percent of survey participants acknowledge that the challenges of meeting current obligations have precluded them from saving any money for retirement.

Social security has been the plan “B” for the boomer generation, but what will the millennial generation fall back on for their plan “B?”

The only plan “B”options I envision for millennial generation include:

  • Relocation to reduce cost of living (including relocating to foreign countries)
  • Reducing expenses through lifestyle changes (less travel, limit dining out, etc.)
  • Continuing to work beyond retirement age in a full or part-time capacity
  • Living the healthiest possible lifestyle to avoid chronic illness (ironically, this will increase lifespan, putting additional pressure on retirement savings)

Rose-Colored Glasses

Boomers caught in the Great Recession can employ some of these tactics as well. However, millennials need to remove the rose-colored glasses and see clearly the challenges they will face in their retirement years. Sadly, the previous generation has failed to pass along a brighter future to the millennial generation, and they need to plan early and plan wisely as a result.

Are you a millennial? What steps have you taken to secure your retirement? Do you believe social security will be there for you?

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