How much should millennials save for retirement, especially without giving up weekend brunch? That’s the big question. If you’re a millennial, you’re likely looking for guidance on how to get your finances in order.
The best way for millennials to save for retirement depends on their income, debt, long-term goals, and available options for setting money aside for the future. Even if retirement feels far off, the numbers don’t lie: The earlier you start saving, the smaller the amounts you’ll need to save over time, and the more you’ll have when it’s time to retire.
A Bankrate survey shows that 56% of Americans feel they’re behind in saving for retirement, with 37% of those saying they’re significantly behind.
If you’re finding it hard to save and running into obstacles, don’t worry. With some simple changes, you can get your savings on track without overhauling your entire lifestyle. Here’s how:
1. Balance Student Debt and Savings
According to Bankrate, the average U.S. household debt is $96,371. The interest rate on your loans plays a big role in deciding how much to save for retirement, says Michael Lux, an attorney from Indianapolis and founder of a student loan education website.
“If you have a student loan with a 3.00% interest rate, it makes sense to invest in retirement rather than aggressively paying down the debt,” Lux says. “However, if your loans have high-interest rates, paying them off might be more beneficial than many investments.” If your loan’s interest rate is higher than what you’re earning on investments, you might get better returns by focusing on paying off your debt.
While you can’t magically make your loans disappear, you can sometimes reduce their burden. Consolidating or refinancing your loans at a lower rate could lower your monthly payments or interest rate. If you can reduce your payment without extending the loan term, you could use the extra money to start saving for retirement.
2. Track Your Spending
Keeping an eye on your spending can help overcome the obstacles to saving for retirement. Kevin Michels, CFP®, says understanding your cash flow can help you find extra money to save.
Using a budgeting app can simplify tracking your spending. These apps link to your checking and credit card accounts, automatically recording your purchases so you can see where your money is going.
Michels suggests looking for ways to cut unnecessary expenses or increase your income with a side job. Options like freelancing, driving for a ride-share service, or offering services online can help you boost your income. “Figure out exactly how much you can add each month to save for retirement,” he says.
Once you’ve maximized your income, consider trimming expenses further. For example, if you pay for a gym membership, you could switch to running or doing yoga at home. If you often eat out with friends, consider hosting a potluck dinner or at-home brunch instead. Finding money for retirement doesn’t mean giving up fun entirely; you might just need to approach it differently.
3. Take Advantage of Your Employer’s Retirement Plan
Understanding your options is key to figuring out how much millennials should save for retirement. If your employer offers a retirement plan, that’s a great place to start, says Jake Serfas, a financial strategist in Washington, D.C.
“A 401(k) offered through your employer can be a powerful tool for saving money and preparing for retirement,” Serfas says. Contributions to a 401(k) are deducted from your taxable income, which can lower your tax bill for the year. Plus, if your employer offers matching contributions, you can grow your savings even faster. Not taking advantage of a 401(k) match is a common retirement savings mistake.
So how much should millennials save in their employer’s plan? Serfas recommends saving at least enough to get the full employer match. Matching formulas vary, but a common one is a dollar-for-dollar match on the first 6% of employee contributions. If you don’t contribute enough to get the match, you’re leaving money on the table.
If you don’t have a 401(k) at work, consider opening an Individual Retirement Account (IRA). Both 401(k)s and IRAs offer tax advantages that can help millennials save for retirement.
4. Start Small, But Start Now
Overcoming the obstacles to saving for retirement sometimes means starting small. Michael Banks, founder of a personal finance blog, says the key to saving is to begin, even if it’s with a small amount.
“There’s no minimum amount required to start saving for retirement,” Banks says. “Even $20 a month is good if you invest it wisely.” Banks suggests using micro-saving apps, which allow you to invest your spare change in a range of diversified investments. The convenience of tracking your investments from a mobile device can be especially appealing to busy millennials.
“The amount you’re saving isn’t what’s important,” Banks says. “What matters most is saving consistently, early, and often.”
If you’re starting your retirement savings from scratch, consider options like an IRA savings account that doesn’t require a minimum balance to open, allowing you to contribute what you can afford.
Set Goals to Overcome Obstacles
There’s no one-size-fits-all answer to how millennials should save for retirement. Setting goals based on your current financial situation can help you reach your retirement savings goals. Making small changes now can keep you moving toward a comfortable retirement without feeling overwhelmed.
