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Retirement Planning for Millennials

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The Millennial Economic Picture

Millennials, born between the mid-80s to mid-90s, are America’s largest and most diverse generation. 

As is well-documented, Millennial spending and investing habits are shaped by living through the Great Recession and market losses. Most came of age during the 2000 stock market crash and began working at the height of the 2008 economic recession. 

Despite their turbulent entry into the workforce, today’s Millennials enjoy many advantages and opportunities. They grew up in the digital age, are more well-educated than their grandparents, and generally bring more entrepreneurial chops than previous generations. 

While retirement seems like a far-off event for most Millennials, it’s never too early to begin the planning process.

The longer you delay saving and investing for retirement, the lower your chances of retiring on time and comfortably.

Case in point: Older Millennials are now entering their 40s. This is a critical juncture in their retirement outlook. Now more than ever, it’s key to invest early and maintain a long-term perspective. It’s time to take advantage of growing retirement funds in 401(k)s and 403(b)s, IRAs, and other tax-advantaged accounts. As Millennials’ kids begin their early years of schooling, a 529 Plan will help mitigate the financial burden of hefty college tuition bills. 

Highly-compensated Millennials would be well-advised to front-load their savings. The magic combination of time and compound interest will help fund a nice nest egg—especially if retirement saving slows down during life events like marriage, children, or job loss. An individualized wealth management strategy will help Millennials preserve wealth for the long-term.

If you’re a Millennial, stay focused on the end goal; you have a time horizon that potentially can pay you back in spades. A Fiduciary Financial Advisor can help you ride the waves of an uncertain economic future by coaching you through stock market volatility and the various twists and turns of life. 

Millennial Financial Priorities

Retirement isn’t too far off the horizon, but Millennials still have several years to build a substantial nest egg. How can you elevate your preparation? Start by understanding your top financial priorities as you begin seriously planning for your future.

Get a clear picture of your cash flow

Getting your finances in order always starts with a clear understanding of your current financial situation. Cash flow describes the movement of money-in and money-out. 

Most employees are paid by direct deposit, and most Millennials prefer making electronic payments. After all, why bother with dollar bills and coins when every app, coffee shop, grocery market, or clothing store accepts credit cards? However, swiping your card makes it all too easy to lose track of how much you spend. Before you can start working towards your retirement goals, it’s essential to become familiar with your monthly cash flow.

Use a budgeting tool like Mint to get a visual understanding of your monthly income versus expenses, which in itself can be a motivating factor. Tracking your expenses may reveal smaller issues, like budgeting too much for dining out or too little for holiday gifts. It could also reveal major issues, like the fact that you’re spending too much on rent. It won’t be easy, but it’ll be worthwhile if it puts you on the right financial track.

Remember to add a saving component. This will positively reflect on your balance sheet, ultimately helping you increase your net worth over time.

Save consistently and in small bites

Social media has provided a fantastic medium for connection. Regardless of your physical location, you can open an app and see what your social connections are doing on a day-to-day basis. We all have that one Facebook or Instagram connection who lives the high life—courtside tickets, luxury duds, and tropical beach vacations. Good for them. However, it’s important not to get wrapped up in keeping up with the Joneses. The more you set aside today, the more you’ll have to enjoy in the future.

The easiest way to do this? Automate your savings. Start small, then work your way up to saving 10 to 20 percent of your pay. By making gradual changes to your habits over time, you’ll increase the likelihood that you’ll stick with them.

Always remember to keep your eye on the prize: you’re working toward a stress-free, financially secure retirement. This will help you balance between what you’re willing to spend money on today and what you want to achieve in the future.

Establish an emergency fund

Federal law requires every car sold and driven in the U.S. to be equipped with airbags. Likewise, you should always make sure you’ve secured your “financial airbag” in case of any unexpected financial catastrophes. Think of an emergency fund as an insurance policy against financial worst-case scenarios. Without a rainy day fund, you could be forced into debt, paying absurdly high credit card interest rates, or even dipping into retirement savings (with huge tax penalties), thus derailing your entire retirement plan.

Stash away at least three (preferably six) months’ worth of living expenses. You can ask your employer to funnel your paycheck to two accounts instead of one, or you can set up your bank to automatically move a small percentage into your savings account each month. If you lose your job, you’ll have more flexibility with cash in reserve.

Max out your retirement savings accounts

The earlier you start investing in retirement accounts, the more likely you’ll be financially secure in the future.

401(k)s, 403(b)s, and IRAs offer incredible savings potential because of their favorable tax status. Most employers offer an employer matching program, meaning they will match all or a percentage of your contributions to a 401(k) up to a certain percent of your pre-tax money. That’s free money! Don’t let it get away. At the very minimum, contribute enough to reap the full benefit of employer matching.

As a side note, Millennials are known to change jobs often. As you continue moving through different companies, you can set up a Rollover IRA to keep track of all your retirement accounts.

Find a Fiduciary Financial Advisor

It’s natural to assume that all Financial Advisors are Fiduciaries, meaning that they’re held to a high standard of duty. After all, like your attorneys and accountants, aren’t they given access to highly sensitive and personal information? Doesn’t that mean all Financial Advisors are required to put a client’s interest ahead of their own?

The fact is, some Advisors are Fiduciaries while others are not. Non-Fiduciary, or “fee-based” Advisors are paid based on the products they sell to you. If you accept biased advice, that could potentially cost you 12 percent of your savings over 30 years, with those savings running out over five years sooner, on average. That’s $17 billion annually in the U.S.!

A non-Fiduciary often focuses on the products they have to sell you. It’s more likely that they’ll take a reactive approach to your finances, rather than meeting with you on a regular basis.

A Fiduciary, or “fee-only” Advisor is required to act in your best interest—regardless of what they stand to gain or lose. If you need guidance on where and how much to save for various financial goals, you’d do well with the diligent care and broader range of services provided by a Fiduciary Advisor. Your Fiduciary Advisor takes into consideration your entire financial life, including investments, debt management, tax planning, college costs, estate planning, and more.

Many Millennial investors are unaware of how to build and optimize a portfolio. Your Fiduciary Advisor will recommend the right asset allocation and diversification for your unique financial situation, which will help produce smooth long-term returns through bear and bull markets. As your investment portfolio realizes interest, dividends, and capital gains over the years, you can observe your portfolio bringing you closer to your retirement goals.

Not everyone has the time or attention to study and maneuver through our complicated tax code. Luckily, your Advisor is well-versed in tax-minimizing strategies, and can integrate them into your overall retirement plan for long-term tax savings.

Finally, your Advisor will build your personalized retirement plan. We’ll help you determine your retirement income goals, develop an action plan to achieve those goals, and keep you on track to retire comfortably in the next few decades. Having a financial accountability partner to provide support is a priceless benefit!

We Can Help

Working with a Fiduciary Financial Advisor is one of the most important investments you can make for your retirement. 

It’s never too early to get started on building a financial foundation that allows you to live the life you want.

If you’re ready to map out your dream retirement, please fill out the form below and we’ll get back to you shortly. We look forward to hearing from you.

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DISCLAIMER: Advisory Services offered through Prosperity Financial Group, Inc., an Independent Registered Investment Advisor. Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Prosperity Financial Group, Inc. and Fortune Financial Services, Inc. are separate entities.

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