This Is How Millennials Should ‘Back In’ to Retirement Planning
Written by
Jake Safane
Edited by
Amber Barkley
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Saving for retirement can be difficult at any age, but when you’re young, it can be particularly challenging to plan for something so far away. How do you know how much to save or what you’re saving for if, say, you’re a millennial in your 30s, and retirement isn’t likely to occur for another 30 years or so?
As it stands, the median retirement savings for someone in their 30s is $95,378, according to Empower. That’s a relatively strong amount that could put you on track for an enjoyable retirement, but much depends on what you want your retirement to look like. For some with big retirement plans, it might not be enough, and those who have yet to save as much might not even be on track to maintain their current lifestyle in retirement.
So, rather than saving a certain amount each year in the hopes that you’ll have enough money, it often helps to “back in” to retirement planning — meaning you start with an end goal and work back from there.
Figuring Out Your Goals
“We always start by asking what a client’s goals are, and then we help them prioritize,” said Bridget Grimes, CFP, founder of WealthChoice.
Backing into retirement planning generally requires more than a generic goal, like wanting to save $1 million for retirement. Instead, it often helps to define areas like what you want your lifestyle to be — both now and in the future — so that you can find the right balance between enjoying life now and saving for retirement.
Be Specific and Realistic
“We provide a worksheet we call Passions & Pursuits that helps them clarify their ideal life and what they’d like to accomplish in the next three, five, ten years, and the future. In most cases, they need to make choices between what they can afford to save for and what they want to save for. That said, we truly encourage them to pay themselves first by contributing to retirement,” said Grimes.
Run the Numbers
In doing so, it’s important to determine what’s feasible by using real numbers.
“We also ask clients to complete a worksheet on their cost of living,” Grimes said. “This gives us a good idea of the amount of income they’ll need in retirement. We work back from there.
“They tell us what is important to them — meaning their financial intentions — what their cost of living looks to be, and what they have now. Then, we can determine how much they need to save and how to invest their money based on this.”
Getting specific like this can help make reaching your retirement goals more likely.
“I don’t think it works to just save an amount you think might be enough, and I don’t think randomly investing will get the performance clients need. This has to be intentional to be successful,” Grimes added.
Adjusting as Needed
While backing into retirement planning can be beneficial, it doesn’t have to mean that you’re on a strict path. Sometimes you have to make adjustments along the way, especially considering millennials often have competing life priorities and a long way to go until retirement.
“We believe there should be a balance between living life and saving for your future, but you have to commit to saving along the way, or you will not have the money to retire with a decent quality of life,” said Grimes.
She said it’s important to check in on your plan through the year and make sure you know what you’re projected to have in retirement based on what you’re saving. “If [our clients] don’t like the path they are on, now is the time to change that. We are big fans of the power of awareness, and we work as a partner with our clients to provide accountability,” she added.
What If You Don’t Know What You Want?
If you’re still unsure about what you want your retirement to look like, you should still be saving and investing so that you have the flexibility to choose the retirement lifestyle you want — but, ideally, you can figure out the direction you want to go in so you have a clearer roadmap in terms of retirement planning.
“If they truly don’t know, we encourage them to save at least the maximum in their retirement accounts to get an employer match and ideally contribute the maximum [allowed] to their retirement accounts,” said Grimes.
By being proactive now, you can help your future self.
“Many of our clients never plan to retire, but they do plan to pivot to another career path — one that is less stressful, more rewarding and pays less. In order to have this option, they need to save and invest along the way. We check in on these projections given how much someone is saving so that they know if and when they can make that pivot,” added Grimes.
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