5 Things Millennials and Gen Z Must Do If They Hit $1M in Retirement Savings
Hitting $1 million in retirement savings is no small feat. And for those in younger generations, such as Gen Z and Millennials, this achievement is even more noteworthy, especially given the current economic landscape and the slew of financial issues that can take a toll on wallets.
Inflation, soaring rates and now, the resumption of student loan payments, are putting a strain on many consumers. Yet, while a new GOBankingRates survey found that few of these younger Americans have already hit that goal, it also showed that some are well on their way to reaching it.
Indeed, 2.7% of Gen Z Americans — those in the 18-24 age bracket– said they have currently saved more than $1 million for retirement. While there are no younger Millennials– those in the 25-to-34 age group — who have attained that goal, 0.8% of the older ones — those in the 35-to 44 group — have.
Now, in terms of how many of these Americans have currently between $250,001 and $500,000 in retirement savings, the numbers edge up: 1.35% of Gen Zers said they fall into that category, while 2.59% of younger Millennials and 7.2% of older ones do, the survey found.
But experts agreed that even if you reach that milestone, the work should not stop here. In turn, they recommended a few steps that can help avoid setbacks and dodge financial pitfalls.
Re-evaluate Your Mindset and Reassess Your Goals
Achieving $1 million in retirement savings in your 20s or even your 40s is no easy feat.
“Whether you got there through fortuitous events, family inheritance, or your own hard work and a frugal lifestyle, the fact remains that you’ve achieved a milestone that few of your peers have,” said Akeiva Ellis, Certified Financial Planner (CFP), expert contributor for Annuity.org and a CFP Board ambassador.
This can sometimes be a lonely experience, and you may even feel guilt or shame around having this money. So, it’s crucial to continue working on your mindset to stay mentally healthy and make the best financial choices, said Ellis.
Ellis also recommended reassessing your goals by determining how much you truly need to have a successful retirement and lead a fulfilling life.
“You might find that you no longer need to save more, depending on your goals. Early retirement could become a feasible option. Take time to reflect on what you genuinely want from life and how your savings can help you achieve those aspirations,” said Ellis.
Create a Life Plan, a Financial Plan and a Tax Plan
If you’re a Millennial or Gen Z that has hit $1 Million in retirement, there are three things you should focus on, explained Bri Conn, investment advisor representative, Childfree Wealth.
According to Conn, it’s easy to get lost in the habit of saving for retirement without ever thinking about what you want out of life. So, before you get started, take a moment to think about what you want.
Then, you need to create a financial plan and determine whether or not you need to continue saving at the same level or whether you can slow down.
“Depending on your life goals, you may need to adjust where you’re saving and investing to give you more freedom and flexibility,” said Conn.
Finally, having a plan for taxes is important too.
“Without proper tax planning, it’s easy to end up with large tax bills in your later years. Remember, tax planning is taking a proactive approach to taxes and is done before tax filing,” added Conn.
Save Your Raises and Bonuses
Indeed, one of the biggest hindering factors for retirement goals is lifestyle inflation, which is when your expenses increase as your income grows, said Kendall Meade, CFP at Sofi.
“This is a double whammy because not only are they not saving but their expenses are growing so the lifestyle they are accustomed to will cost more in retirement,” said Meade.
In turn, a way to avoid that is by saving and investing the majority of any raises or bonuses you get.
This serves two purposes, she said: it prevents lifestyle inflation and keeps your expenses lower now, meaning you will need less money to replace your current lifestyle in retirement. Moreover, it allows you to save more money now which can be invested and grow over time.
“This method can be relatively painless because when you are making these changes as they occur in your life it is ‘out of sight, out of mind’ as you never get used to having this income to live off of versus having to make budget cuts later,” she added.
Don’t Stop at $1 Million (You May Need More Than That)
A rule of thumb is that you should be able to safely withdraw 4% of your investment portfolio in the first year of retirement and adjust it for inflation in subsequent years without outliving your money, according to Meade.
Yet, she also noted that it is important to keep in mind that this rule of thumb came from a research study that analyzed rolling 30-year historical periods to understand the maximum sustainable withdrawal rate for someone living for 30 years in retirement.
“It is also based on a 50/50 portfolio, where half of the retirement assets are invested in equities, while the other half is invested in fixed income,” said Meade.
In turn, according to her, it is more appropriate to build a financial plan that considers income sources, expenses that adjust over time, different account types, taxes, fees, and curveballs, such as unforeseen medical expenses or inflation shocks.
“You should also account for health and lifestyle factors that may influence life expectancy. That is why the 4% rule can be used as a starting point for clients accumulating assets, but should not be the be-all and end-all for someone making irreversible decisions such as leaving the workforce permanently,” she said.
Keep Your Foot on the Accelerator
“If any of these groups reaches $1 million, they should continue to do what got them there. Specifically, they should keep their foot on the accelerator,” said Robert R. Johnson, PhD, CFA, CAIA, professor of finance at Heider College of Business, Creighton University.
And one thing they should not do is become more conservative with their asset allocations, he added.
“These generations have the huge advantage in that they have a long-time horizon to retirement,” said Johnson.
“Time is the greatest ally of the investor because of the “magic” of compound interest. Investors need to begin compounding early, and let that compounding work its patient magic over decades.”
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