I’m an Actuary: 9 Reasons Millennials Will Need More than $1 Million To Retire Comfortably
Written by
Laura Beck
Edited by
Levi Leidy
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It used to be that retiring with $1 million in savings was considered the standard. This amount ensured that your savings would last for the length of your retirement. But for millennials, that dollar figure may not be enough anymore. To retire comfortably, they’ll probably need to have more than $1 million saved for retirement–quite a bit more.
“There are a multitude of factors that could lead an individual to needing more or less saved, such as what age they retire, where geographically they retire, their spending habits, lifestyle, etcetera,” said Anna Rappaport, a fellow of the Society of Actuaries.
So if not $1 million, what number should millennials realistically target? The amount can vary greatly based on factors like lifestyle, location, healthcare needs and expected longevity. You may need to have $2 or even $3 million saved. But for many reasons, it’s clear that that $1 million target is no longer enough.
Individuals Are Living Longer
One of the primary reasons why millennials will need to save more for retirement is that the average life expectancy is increasing. If you’re a millennial, you can expect to live longer in retirement. This means that your retirement savings need to last longer as well and continue to cover your living expenses.
“Individuals are living longer, which means retirement will likely be a longer period and, therefore, need more funds than in the past,” said Rappaport.
Obligations to Financially Support Family Members
The rise in life expectancy also means that some millennials might find themselves responsible for not just themselves, but also supporting their aging parents or other family members.
“Many retirees have obligations to financially support family members, which can strain retirement funds if not enough has been saved,” said Rappaport.
This is a huge obligation, which can add substantial expenses to any retirement budget. Factor this into your retirement savings goals to be sure your own financial security isn’t compromised.
Healthcare Costs
Healthcare costs are a big concern for retirees, and millennials are no exception. Medicare provides essential coverage, but it doesn’t cover all medical expenses. Also, as life expectancy increases, the likelihood that you’ll need services for long-term care goes up.
“As individuals live longer, they are likely to endure long-duration illnesses, such as Alzheimer’s, and the cost of care is substantial,” said Rappaport.
Alzheimer’s, dementia, and other age-related illnesses all require this kind of care, either in a nursing home or with in-home assistance. The costs for long-term care can be high and could easily deplete your retirement savings faster than you think.
Social Security Is No Longer Enough
Traditionally, Social Security benefits have served as a main component of retirement income. But the reality is that these benefits are intended to cover just a portion of your living expenses.
“Social Security is enough to cover only part of a retired person’s expenses,” said Rappaport.
Millennials may not be able to rely solely on Social Security to maintain their desired standard of living. Most likely, they will need to have substantial personal savings and investments ready for retirement.
Travel
Retirement is an opportunity to pursue all the long-awaited travel adventures you’ve been dreaming of. You may even want to spend an extended period living abroad. But funding this kind of lifestyle can get expensive. If you want to spend your retirement satisfying your wanderlust, you’ll need to plan and save accordingly.
“Many people hope to travel during retirement,” said Rappaport. “Funding for travel and spending time abroad, if that’s of interest to the individual, requires a larger retirement savings.”
The Changing Nature of Work
The traditional model of full-time employment with employer-sponsored retirement benefits is becoming less common. Instead, the gig economy and freelance work have become more standard.
“There will be more gig economy type work without retirement benefits,” said Rappaport. “Over the past few decades, there has been a decline in the number of people with conventional pension plans and retiree medical plans. The responsibility of saving for retirement falls more and more on individuals’ shoulders.”
If you are a gig worker, you might not have access to traditional retirement plans like a 401(k). Even if you are employed full-time, traditional employer-sponsored pension plans for retirement have become rarer and rarer. This means that you’ll need to be proactive in building your own retirement plan, and shoulder a greater burden of your retirement through your personal savings and investments.
Increasing Housing Costs
Housing is a significant expense for most retirees. Rising housing costs and a shortage of moderately priced housing options in many areas have made it more and more difficult for this generation to be certain they’ll have affordable living during retirement.
“Increases in housing costs and shortage of moderately priced housing can also impact the amount a person will need to save for retirement,” said Rappaport.
Depending on what works for you, you may need to plan to downsize, relocate, or age in place. Either way, millennials will need to consider the impact of housing costs on their budget.
More People Are Retiring Alone
Traditionally, retirees have been able to count on the combined income of their partner or spouse. However, the rise in divorce rates means that more millennials could find themselves facing retirement alone.
“More individuals are experiencing retirement alone versus with a partner due to increased divorce rates, making them the sole financial provider for their retirement,” said Rappaport.
In this case, the entire burden of retirement funding shifts to the individual. You’ll need to have more saved, and you’ll need to plan carefully to be sure you stay financially secure.
Paying Off Debt
If you have debt, your path to retirement will be more complicated. Student loans, mortgages, or credit card debt, can significantly impact the funds available to you in retirement.
“Many people will go into retirement with significant debt,” said Rappaport. “Paying down debt, if applicable, is then an additional retirement expense.”
You’ll need to prioritize debt repayment as part of your retirement plan. Minimize or eliminate this burden as early as you can.
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