Retirement moves for millennials without savings

By Aaron Cirksena

In a world where pensions are a thing of the past and Social Security’s long-range reliability is being questioned, personal retirement savings have become paramount. For most Americans, that’s a problem. According to a 2023 study, nearly half of Americans lack any retirement savings.

The situation is even worse for millennials. Recent reports show that 66% of working millennials have nothing saved for retirement and that they believe they need to save $1.65 million to be prepared for retirement.

The good news is millennials have plenty of time to build retirement savings, provided they are willing to make the decisions needed to achieve some momentum. Here are five smart moves millennials without savings can make to get on the right track for a fully funded retirement.

1. Assess your unique situation

Several factors can prevent someone from establishing savings. For millennials in today’s economy, these factors include student loan obligations, a high cost of living, job insecurity and lifestyle inflation.

The first step towards effectively addressing the factor is identifying it. If financial challenges are ill-defined — “I don’t know where my money goes!” — developing a strategy to confront and overcome them will be impossible. As is the case with a health-related issue, an effective diagnosis is required for one to properly recover and feel relief.

2. Crunch the numbers

Retirement calculators are valuable tools for determining how much input is needed to amass a desired retirement amount. Whatever amount you believe you will need to live comfortably in retirement can be entered into a retirement calculator along with your age and a few other key details to calculate your required monthly contributions.

For example, someone who is 23 and earning $47,034 a year — the average annual salary for millennials — will need to contribute 13% each month, or $520 to start with, to get to $1.65 million in retirement savings by age 67. That assumes earning a 6% rate of return, seeing a 2% salary increase each year, and living with a 3% annual inflation rate. If $1 million is the desired number, 8% or $320 to start with, is the amount that must be invested each month.

3. Start today

“Start early” is common advice — perhaps the most common advice — given by retirement advisors. They encourage this practice because they understand the power of compound interest, a financial phenomenon that accelerates earnings as investments mature. Compound interest leverages the power of the investment and the interest it has already earned to increase the momentum of returns.

To illustrate this, imagine you waited until the age of 33 instead of 23 to begin your retirement investing. The same 13% that would net you $1.65 million when beginning at 23 would net you only $825,000 if you delay your start to 33.

4. Stay consistent

Effective retirement savings are built upon consistency because a consistent amount invested each month will grow considerably over time. A random amount invested whenever it is available will not fully take advantage of the power of compound interest.

Investors must learn to control their emotions to consistently contribute toward retirement. News of market fluctuations can discourage investors from sticking to their plans, and unexpected expenses can also make consistency challenging.

Automating contributions is one way to avoid the temptation to short circuit the investment strategy. Employer-sponsored retirement accounts often allow retirement contributions to be automatically deducted from an employee’s paycheck, which can make it much easier to stay consistent.

5. Stay engaged

Sometimes, retirement strategies need adjusting. Higher-than-average inflation can eat away at spending power, and a career shift can change contribution percentages. Whatever the factor, staying engaged with the process will help investors be aware of developments and adjust accordingly.

Those working with a retirement advisor should plan an annual meeting to rebalance accounts that might be needed. Touching base when other relevant events occur, such as an income adjustment or a significant market downturn, can also be helpful.

Committing to these five steps can help anyone, regardless of where they stand in their retirement planning, to build momentum toward their goals. With honesty, consistency, and a well-informed plan, retirement dreams can quickly become retirement realities.