Email FacebookTwitterMenu burgerClose thin

Guide to Retirement Planning for Millennials


Members of the Millennial generation face special challenges including high levels of student loan debt and inflated housing costs when it comes to planning for a secure retirement. However, by taking proactive steps now, Millennials can set themselves up for a comfortable and secure retirement. Keys include budgeting, saving and making the most of tax-advantaged savings plans. Ensure a comfortable retirement by consulting with a financial advisor who can help you create a personalized savings plan.

Millennial Retirement Background

People born between 1981 and 1996 today are at the ages when planning for a financially secure retirement assumes significance. One of the issues Millennials have to confront here is the long wait until they can expect to end their working careers. With decades to go before the 28-year-old youngest members begin retirement, Millennials can find it challenging to take action now. On the plus side, having many years to save and invest means that, thanks to the power of compounding, they have a good chance of building a satisfactory nest egg.

However, time isn’t the only important factor in financial planning for Millennials. At an average of $44,290 per person, this generation has the most student debt of any generation to date. They also have accumulated less wealth than other generations at this stage of life, and are less likely to own homes than previous generations. Finally, the Social Security Administration is warning that without Congressional action to shore up its finances, benefits will be cut by 20% in 2035.

Five Steps to Millennial Retirement Planning

A Millennial calculating how much she will need to save for retirement.

Despite Millennials’ special circumstances, guidelines for planning their retirements resemble those for other generations. A basic approach might follow these five steps:

  1. Assess your situation. Create a personal financial sheet. List all your assets, such as bank accounts and vehicles, and liabilities, including credit card balances and student loans. Also evaluate your income. Compare your earnings to average salaries for your age and look at where you might be in a decade or two.  
  2. Plan for retirement. Think about the age at which you plan to stop working. Also consider your ideal retirement lifestyle, including the location and how you plan to spend your time in retirement. Evaluate income sources you may have then, including Social Security, corporate or government pensions, investment earnings and part-time work.
  3. Budget. Estimate your current expenses and sources of cash on a monthly basis. Bills will likely include rent, food, transportation, health insurance, entertainment and debt service. Your income will likely be all or mostly from employment. Don’t forget to account for taxes and other paycheck deductions when estimating take-home pay.
  4. Start saving. While making your budget, be sure to allocate some money for savings. Focus first on building an emergency fund. Next, aim to max contributions to tax-advantaged retirement accounts such IRAs and 401(k) plans. If you have money left, consider taxable accounts. Target-date funds may offer a simple and effective investment option. At this point, getting started investing and saving is more important than having the perfect asset allocation.
  5. Pay down debt. Whether it’s more important to pay down debt or start saving first depends on your situation. Many people will find they are best served with a blended approach, devoting some money to pay off loans and some to save and invest. Paying down debt frees up cash flow for saving, and it’s especially helpful to enter retirement without owing anything.

Estate planning isn’t necessarily part of retirement planning, but the two are related. Preparing a will and taking other estate planning steps now, even though the idea of your own death seems hard to consider, will make it easier for your heirs if it comes to that.  

How Much Do You Need to Retire?

Two key questions for retirement planning are how much money you need in order to retire and how much you need to be putting away now to get there. Answers depend on individual circumstances, including your planned retirement age and where you live, among other factors. However, SmartAsset’s retirement calculator can help you look at common situations as well as run what-if scenarios.

According to the calculator, a Millennial born in 1989, living in New York City, earning $75,513 and planning to retire at age 66 will need to have a nest egg of $878,532. Monthly savings of $875, equal to 14% of their income, will get the job done. Changing birth date, planned retirement age, location, earnings and location can affect these numbers, as can whether or not you are eligible for Social Security or a pension.

Bottom Line

A Millennial reading a book about retirement planning strategies.

Retirement planning may seem like a distant concern for Millennials, but taking action now can make all the difference in securing a comfortable future. High student debt loads, affordable housing shortages and even questions about the reliability of Social Security are among the challenges Millennials face when developing strategies for funding a secure retirement. However, careful planning and small steps taken consistently over time can lead to significant results.

Tips for Retirement Planning

  • Take the first step towards a worry-free retirement by scheduling a consultation with a trusted financial advisor today. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Social Security is a key part of most retirement plans. Estimate the amount of your future monthly benefits with SmartAsset’s free online Social Security calculator.

Photo credit: ©, ©, © Markovic