Gen Z and Millennials Not on Track for $3 Million To Retire Comfortably — Here’s How They Can Fix That

Young couple working on a budget while sitting on sofa in the living room.
EmirMemedovski / Getty Images

Retirement isn’t cheap. In fact, a recent analysis conducted by Wealthcare Financial found that by the time Gen Z and millennials retire, they will need around $120,000 to $150,000 per year to live comfortably — making $3 million the average amount they need to retire. So, it’s important to start saving early.

However, many young people don’t appear to be doing that. More than half of Gen Z and millennials have less than $10,000 saved for retirement, according to a recent GOBankingRates survey. Also alarming, 40% of people ages 35-44 have $500 or less in savings, dropping to 29% for ages 34 and under.

If this sounds familiar, you’re clearly not alone. The good news is that it’s not too late to step up your retirement savings plan — or create one in the first place.

Ready to get started? Here are nine tips from financial experts to help get your retirement savings on track.

Understand Your Monthly Budget

“You need to get clear on where your money is going every month and dive into how to make every dollar count,” said Jen Reid, financial planner and founder of Base Financial Planning. “It doesn’t matter how much you make, you still have to understand where your money is going.”

Are You Retirement Ready?

If you don’t have anything to save or invest at the end of the month or year, you won’t have anything to add to your retirement or investments. “Budgeting is a basic activity that everyone should do,” she said. “This can be as simple as taking a few minutes a week to look at your credit card statements or bank accounts.”

Avoid Lifestyle Creep

“When you get a raise or bonus at work, keep your lifestyle the same and use the additional income to save [and/or] invest for retirement,” said Reid.

Lifestyle creep, also called lifestyle inflation, is when you increase your expenses as you make more money. With lifestyle creep, former luxuries become viewed as necessities, which makes it harder to save money.

“Be aware that you and your income are your biggest wealth building tool,” she said.

Pay Off High-Interest Debt ASAP

“When using ‘buy now pay later’ methods, it helps that instant gratification emotion that feels good in the moment,” she said.

However, Reid cautioned that taking this route can easily hold you back.

Are You Retirement Ready?

“Investment returns will rarely be able to beat the interest you are accruing on your debt,” she said.

Properly Configure Your Retirement Accounts

“You want to make sure your money is invested, not just sitting in money market accounts,” she said. “If you feel like you are behind, you cannot afford to be conservative with your investment profile.”

She said you might have to be a little more aggressive to get higher returns for your retirement needs. “Retirement is not an age, it’s a number,” she said.

Beware of Investment Fees

It’s important to be aware of the fees and expenses associated with investing and using the services of financial professionals, Reid said.

“Understanding expense ratios and how your financial advisor gets paid could astronomically affect the balance of your portfolio,” she said. “I would recommend finding an hourly rate or retainer fee model, meaning you pay a specific amount per project or year to work with that professional.”

She said your fee will not change based on the amount of your assets under management. “This could increase your investment portfolio by over 28% alone,” she said.

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Get Help From a Financial Professional

If you’re currently managing your finances on your own, Reid suggested meeting with a financial advisor.

“Even if you just need support with budgeting and paying down debt, having the accountability and support along the way will get you where you want to be faster,” she said. “They may have some tricks up their sleeve too that will help you manage your money better as well.”

Take Full Advantage of Free Money

Regardless of your age or financial situation, you should always take full advantage of employer-matching contributions to employer-sponsored retirement plans, said Joe Buhrmann, senior financial planning consultant at eMoney Advisor, LLC.

“For example, an employee making $60,000 whose employer matches 50 cents on the dollar up to 3% of the employee’s income will lose out on up to $1,800 of matching contributions to a 401(k) if they do not make the full 6% contribution,” he said. “This 50% boost on contributions can add up significantly over time.”

He also advised taking advantage of matching contributions to employer-sponsored health savings accounts.

“These accounts offer a unique trifecta of tax benefits, including tax-deductible contributions, tax-deferred growth and tax-free income for qualified distributions for health care expenses,” he said.

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Get a Handle on Your Cash Flow

“Track your sources of income and where the money is going,” he said. “If your income is less than expenses, that’s an easy math problem to solve.”

He recommended looking for ways to end the month with money in the bank.

“Ditch some of the subscriptions or take opportunities to shop differently — think thrift shops and discount grocery stores — or eat in more,” he said. “In today’s gig-economy, there may also be ways for you to shore up the income side of the equation.”

As a financial advisor, he said part of his job is to help clients set financial goals. “Too many people save only what’s left at the end of the month, which may be little to nothing,”

To avoid this, he said it’s important to prioritize your goals of saving more or reducing debt, then making decisions — that might not always be easy — on where to spend the remaining funds.

“Small changes, given time, can yield significant results,” he said. “The wealth you save may be your own.”

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Take Small Steps

“Technology can be a helpful tool to achieve your goals,” he said. “Utilize automation to sweep funds from your bank account or paycheck into investment accounts or make automated payments to pay down your credit card balance.”

From there, he said you should gradually increase these amounts over time.

“Many 401(k) plans offer an auto-escalation feature where contribution amounts increase each year by 1% until they reach a set amount –e.g. 15% of pay,” he said. “Similarly, if you’re saving money in a brokerage account or even building up an emergency fund, take the opportunity to round up.”

Beyond that, he said to consider making an extra contribution by rounding up to an even number. For example, he said you might put extra money into a retirement account to make your balance a multiple of $100 or pay your credit card balance down to a multiple of $100.

“Small amounts over time will add up and pay dividends to improve your financial security,” he said. “Many banks will even round up debit card purchases and sweep extra pennies into a savings account.”

Are You Retirement Ready?

It might not seem like a now, but even saving a little bit at a time will help you build momentum. Everyone needs a starting point to build on, so find yours and work from there.

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