How to Plan for Retirement: 3 Practical Tips for Millennials

When you think of “retirement”, what comes to mind? Maybe you’re thinking of a grouchy baby boomer, showing up hours before a store opens and yelling at the employees. You might think of the coastal “snowbirds” – elderly people who come to tropical climates in the winter (or move so they can live there all year round).

For some people, “retirement” is the promise of eventual rest. You don’t have to work yourself into the grave if you can just save enough to retire. Someday, you can relax and enjoy life instead of working too many hours a week. 

Unfortunately, for many millennials, retirement is something “other people” do. Many don’t know how to plan for retirement or worry that debt will keep them working well into their senior years. Add in the increasingly higher cost of healthcare, housing, and standard living and you have a recipe for despair.

How on earth are you supposed to plan for your retirement in this economy? You feel like you’re barely making it as it is! The good news is that planning for retirement isn’t impossible. Today, we’ll be busting some common myths about retirement and giving you practical tips for planning your retirement.

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How to plan for retirement when you’re…

The odds can seem stacked against you when it comes to planning for retirement. Most of the help that’s out there is all “big-picture” and no “practical steps”. And, when you break it down, all the advice boils down to one thing. Retirement is about letting your money grow now so you don’t have to work later

The problem for many millennials is that you already have too many demands on your finances. You’d love to just sit on some money, but between student loan debt, medical debt, and the ever-higher cost of living, there’s just no room in the budget. You’re resigned to “dying with your boots on”, as the old saying goes.

If this describes you, you’re not alone. 80% of millennials say they don’t plan to retire, more than any previous generation. Debt is a big factor here, but the intense economical changes millennials have lived through play a part, too. It’s hard to tell how much money you’ll need to retire when the cost of living keeps changing so drastically and frequently.

The good news is that none of the things we’ve listed make planning for retirement impossible. Let’s look at three things that might be holding you back and how you can deal with them.

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…planning never to retire

Ok, so you’re with the majority and you don’t plan to retire. That means this article isn’t for you, right? Wrong! Even if you don’t think you’ll “get to” retire, you can’t get out of doing some planning for retirement.

First up, aging often brings chronic health conditions along with it. That means that even if you want to work the rest of your life, age might force a retirement. Even if you only do a little planning now, if age forces a retirement, something is better than nothing.

Let’s say that age doesn’t force you to retire and you stay completely healthy till you die peacefully in your sleep of old age (doubtful). Should you plan for your retirement then?

Absolutely. You know that feeling of finding an extra $20 in your jacket pocket? Imagine that, but instead, you have $10,000 or more in a retirement fund that you can use to spoil yourself when you reach your 70s. Extra savings never goes amiss!

Finally, planning for your retirement gets you in a better financial mindset. You start to get used to saving, you learn more about investing, and your overall financial hygiene improves. Even if you never plan to retire, you can start paying off debts “just in case”. You can use a tax-free account, “just in case”. 

Before you know it, you’re a lot closer to retiring than you ever thought you could be! 

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…living paycheck-to-paycheck.

Ok, now on to the practical tips we promised. How in the frickety-frack are you supposed to save thousands of dollars when you’re living paycheck-to-paycheck? First, know that you aren’t alone. Living paycheck-to-paycheck is a reality for 70% of millennials

This makes saving and investing especially difficult. You don’t have “extra” money in your budget, and setting aside hundreds of dollars a month just isn’t feasible. 

The great news is – you don’t have to

Remember, saving for retirement is all about letting your money grow. That’s why all the advice out there urges you to start saving as soon as possible. 

Believe it or not, you can start saving for retirement by saving just $20 a month. If you get paid bi-weekly, that’s $10 a paycheck. When you’re living paycheck-to-paycheck, that can seem like a lot, but it’s more manageable than trying to save hundreds of dollars a month! 

You can make $20 of room in your budget in a number of ways. You could even start a side hustle to make extra money. Where you find that $20 is up to you, but if you think it won’t make a difference, think again.

Say you save $20 a month. That’s $240 a year, right? Ok, now let’s say that you do that for the next 40 years. Even without interest, that $20 a month will grow into $9,600. Now while that’s not enough to retire on, it’s a long way from nothing. And, again, that $9,600 is assuming you just put cash in a box.

If you choose to put that into a high-interest savings account, it’ll grow more. In a retirement account, like a Roth IRA, that number gets even bigger.

The average interest rate for a savings account is about 0.06% – 1%. At 0.06%, you’ll be looking at a total of $9,959 after 40 years. Not a lot more, but better than leaving it in a box!

Generally speaking, a Roth IRA will generate about 7% – 10% in returns each year. Even with “just” a 7% rate, you’d be looking at quite the growth. After 40 years, your $20 a month will turn into $51,507. Again, you wouldn’t be looking at living 20 years without working, but it goes to show how big a difference saving even a little can be. 

You won’t end up a millionaire, but you will be closer to retiring. More importantly, you’ll be on your way to breaking the paycheck-to-paycheck cycle.

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… new to investing.

Alright, we covered saving. Now, what about investing? Even if you’ve been barely scraping by and haven’t invested once in your entire life, you can start investing. When you’re new to it, “investing” can sound like something only rich people do. 

Fortunately, this isn’t true at all! In the digital age, there are dozens of options for the ordinary person to start investing. Again, start small with just $20 a month and put your profits back into investing so you can see growth faster.

So where do you start investing to plan for your retirement? That depends on your current financial situation. 

No matter who you are, you can try an app like Acorns, Robinhood, or Stash. These companies are all dedicated to making investment more accessible. They allow you to invest as much or as little as you’d like, and some even have “auto draw” features so you don’t have to remember to add money to your investments.

If you want to be more intentional and have a little money to spend, look into a Robo-advisor. Robo-advisors are AIs specifically made to help you with investment and financial planning. They’ll give a little more guidance than a DIY app, while still keeping costs low.

Betterment, Wealthfront, and SoFi are all Robo-advisors that can help you set and meet investment goals. You only need $1 to get started with SoFi, and $10 to start investing with Betterment. Wealthfront has a minimum of $500, but their fees are just 0.25% of the amount you hold with them – even as your wealth grows!

Finally, if you have the budget and don’t trust robots, look into hiring a financial advisor. You can hire them for a one-time flat rate just to get started, but that’s not very cost-effective. To get the most bang for your buck, hire a financial advisor on retainer. 

Their fees usually tie into how much money they’ll be managing for you, so you’ll have to ask. This is also going to be the best option if you’re new to investing but already have some substantial savings. 

No matter which option you pick, you don’t need to know everything about investing and you don’t need to go it alone. Instead, stay informed, keep learning, and (most importantly) get started! Investing always has some degree of risk, but just like with saving, the rewards will compound.

Plan for retirement, even if you don’t think you’ll get to retire

Even if you think you’ll never retire, learning how to plan for retirement is critical. First, you’ll be practicing skills that you can use when managing your finances on a day-to-day basis. The best reason, though, has nothing to do with that. 

Remember when we talked about how much retirement savings rely on an early start? Well, that also means that if you change your mind later in life, it’s much harder to meet a goal. Even if you only save a little now, that’s better than nothing. If you get to your 50s and realize you want to retire after all, you’ll be grateful that you started sooner.

The early stages of planning for your retirement are just good financial hygiene, and that’s what we’re all about here at Millennial Dollar. From wiping out debt to budgeting tips, subscribing to our newsletter will help you break the paycheck-to-paycheck cycle and build a better financial future.