When it comes to planning for retirement, the greatest thing about being a Millennial is that time is on your side. One of the hardest things about being a Millennial is prioritizing your future self when goals like retirement are still 20 to 30 years away. How much money will I need to retire in 2040? The year 2040 can seem like an eternity, especially when you’re young and so many short-term goals seem more important.
To put things in perspective, we want to share some important financial advice for young couples, young professionals, and young adults in general.
Why Start Early?
The earlier you start planning for your future, the less you have to save (and the less you have to work) to make it happen. This is all thanks to the power of compound interest.
For example, let’s say your goal is to retire at age 65 with $1.5 million.
If you start saving at age 28, you only need to set aside $600* per month to reach your goal. (You’d save $266,400 total, and the rest would be earned through compound interest.)
If you start at age 38 – just 10 years later – you need to save $1,400* per month to retire at age 65 with $1.5 million. (You’d contribute $453,600 and the rest would be in earned interest.)
As you can see, a difference of 10 years can result in needing to save $187,200 more of your own money to reach your goal. That’s the power of compound interest.
*All numbers were estimated using an investment calculator, assuming an 8 percent annual return. For more specific amounts based on your unique situation, talk with a financial advisor.
How to Get Started Early
Knowing what you have to do to retire as planned is one thing. Knowing how to do it is another. If you’re asking yourself, “How much money will I need to retire in 2040?” consider the following helpful steps:
Set Some Goals
Here’s the fun part: Think about what you want retirement to look like. Do you want to retire early and move to Thailand? Start your own business? Save enough now so you can be a stay-at-home parent when the time comes?
Your life is uniquely yours. Now is the time to think about what you want to achieve, so you have something to look forward to as you start saving.
Get Serious About Debt
Millennials are outpacing every other generation when it comes to accumulating debt. A recent study found that Millennials have $27,251 in non-mortgage debt. Among those with mortgages, the average balance is $232,372.
The dangerous thing about debt is that it adds strain to your life, both financially and emotionally, and it can present a major roadblock to reaching your goals. If you have debt, make a plan to destroy it as quickly as possible, so you have more money to put toward your future.
Start Contributing to Your 401(k)
If you’re offered a 401(k) plan through your employer, at the very least, make sure you’re contributing enough to get your full employer match if one is offered. If you save 5 percent of your salary and your employer matches that 5 percent, this is the same as getting a 100 percent return on your investment. It’s never smart to walk away from free money.
A Roth IRA can also be a good option for Millennials who meet the income requirements. Because you fund it with after-tax dollars, you can enjoy tax-free growth and withdrawals down the road.
Discuss your options with a financial advisor who specializes in helping clients like you.
Calculate Your Retirement Savings Needs
Even though you may still have decades before retirement, start thinking about what age you may like to retire and how much money you’d need to live comfortably. How much money will I need to retire in 2040? How much money will I need to retire in 2043? How much money will I need to retire in 2045? A few years can make a big difference.
Early Retirement
According to a recent survey, 34 percent of Millennials plan to retire before age 65. If you’re one of them, congratulations! This is an exciting goal to work toward, but it requires a little more planning than usual.
For example, you’ll need to start thinking about:
- What you’ll do for healthcare insurance after you leave the workforce (before Medicare kicks in at age 65)
- How you generate a paycheck if you retire before age 59-½ (which is when you can start taking withdrawals from retirement accounts without penalty)
- How you’ll spend your free time, and how much those activities will cost you
Self-Employment and Retirement
If you’re a self-employed Millennial, you have a lot of options when it comes to saving for retirement. You may not be eligible for a Traditional 401(k) with an employer match like a lot of your peers, but you can still save using these types of accounts:
- Solo 401(k)
- SEP IRA
- SIMPLE IRA
- Traditional or Roth IRA
- Taxable brokerage account
Talk to a financial advisor about your options.
Why a Financial Advisor Can Help
A lot of Millennials turn to the Internet, in search of free advice online. But here’s some financial advice for young couples and professionals: Free information online can be a blessing and a curse. On one hand, it can help shed light on areas of your finances that need improvement. But on the other, this information is likely generic and not suited for your unique situation and needs.
Read our recent blog post: Is it Worth it to Hire a Financial Advisor?
Finding a financial advisor who can meet with you one-on-one and help you create a long-term plan to reach your individual goals can provide more value than you may think. For one, as you get older and your financial situation becomes more complex, your financial advisor can grow with you, helping you navigate job changes, buying your first home, starting a family and more.
No matter where you are on your financial journey, as a Millennial, the hardest (and most important) part can be simply getting started.
At Scarborough Capital Management, we work with a lot of young couples and professionals and are here to help. Schedule a no-obligation conversation and get the discussion started.
Resources
- MMM: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
The Early Retirement Extreme book authored by Jacob Lund Fisker, Mr. Money Mustache blog and website authored by Peter Adeney, are unaffiliated with Scarborough Capital Management, and IFG.
Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. Diversification and asset allocation do not guarantee positive results. Loss, including loss of principal, may result.
