Behind on Your Retirement Savings? 6 Money Moves Millennials Should Make To Catch Up

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Millennials dedicate more time to their finances than any other age group, with 39% of millennials spending four hours or more per week managing their money, a recent TIAA survey found. Yet, after experiencing two recessions, a pandemic, rising student loans and an increasing cost of living, many millennials have little to no retirement savings. Fortunately, if this is your current situation, time is on your side — the oldest millennials still have a little less than two decades to get their retirement accounts back in shape.

Concerns: A Troubling Look at the State of Retirement in 2021
Read More: Suze Orman, Warren Buffett and Other Money Experts Weigh In on How To Best Set Yourself Up for Retirement

If you’re a millennial who is currently behind the curve on retirement savings, make these six money moves to catch up.

Figure Out How Much You Should Have in Retirement Savings

“There are a lot of sites out there that will give a big number or percentage that people ‘should’ have at a certain age,” said Mark Schrader, financial planning strategist at TIAA. “I think we ought to meet people where they are and not start the conversation with a potential negative about what they haven’t done to this point. Throwing a big number out there comes with a risk of discouragement. Hopefully, millennials have their nest eggs started, but if not, it’s time to make a plan going forward.”

Retire Comfortably

The first step in “catching up” is to know where you should be based on your retirement goals.

“The first question to ask is how a person defines what retirement will be for them,” Schrader said. “The main goal is to have assets and income to cover your lifestyle expenses once your employment income stops. What income sources do they expect to have once their working income stops? An individual or household, depending on their lifestyle, may need to replace anywhere from 70% to 100% of their income in retirement.”

Ideally, you will have multiple income sources to rely on in retirement, including Social Security.

“Consider what Social Security will be for you,” Schrader said. “It may be lower than currently scheduled benefits based on the recent trustee’s report, but may still replace a good percentage of your salary depending on your level of income. If your employer offers a traditional pension, this is part of the discussion. Then additional income needs will be covered from your nest egg, whether through lifetime income options, withdrawals or required minimum distributions.”

Although how much you should have in your retirement fund will depend on your goals and income sources, there are some general rules of thumb you should keep in mind. But don’t stress out if you aren’t exactly where you should be.

“By age 30, someone with a 401(k) balance that matches their annual salary will be better positioned than most of their peers — for example, a $50,000 401(k) balance for someone with a $50,000 salary,” said Rob Stevens, retirement income specialist at TIAA. “Of course, someone with a low salary for most of their 20s could receive a pay increase in their late 20s that could make it difficult for their retirement plan balance to match their current salary. A common rule of thumb for 40-year-olds — have a retirement plan balance three times their current salary — has the same challenge.”

Retire Comfortably

Aim To Contribute 10% to 15% To Your Retirement Fund

Instead of focusing too much on these rules of thumb, focus instead on your current contributions and any matching contributions from your employer.

“If someone is making single-digit percentage contributions to their retirement plan, they should look to increase their contribution percentage to at least 10%,” Stevens said.

If you are an older millennial, aim to be contributing 15%.

“In general, retirement savers should plan to save 10-15% in their systematic retirement savings, including employer contributions,” Schrader said. “This can be adjusted based on their personal circumstances. If they’re a little closer to retirement, they can plan to save more to be prepared, and if they plan a longer working career, they may stay at the lower end of the range as long as they are getting their full employer match.”

Increase Your Contributions Annually, If Possible

“I think it’s a good idea to evaluate [retirement contributions] at least each year as you have an annual review in your career,” Schrader said. “Many companies do raises or bonuses after annual reviews each year, and this can be a great time to increase your savings rate while you see your salary increasing. Many companies now offer an auto increase option, which could be advantageous to make it happen. This is an annual decision employees can put on autopilot so they don’t have to think about it each year.”

Schrader recommends an automatic 1% annual contribution increase if offered.

“This incremental approach can be a better way to significantly increase long-term contributions than someone waiting to make a large contribution increase when ‘the time is right,'” he said. “Additionally, there might be other one-off times throughout the year where it might make sense to increase savings. For example, if you pay off a debt such as a credit card or a car, it’s a good idea to take a portion of that cash flow that’s been freed up and redirect for additional savings.”

Reduce Expenses and Increase Income To Up Retirement Contributions

“One of the best ways for millennials to increase contributions into their retirement plan is to evaluate and reduce their expenses,” Stevens said. “Bringing lunch to work/eating more home-cooked meals, brewing coffee at home, canceling rarely used streaming services and working out at home instead of a gym are a few examples of spending reductions that can free up more money for investment.”

Contributions can also be increased by generating additional income with a side gig, Stevens said.

“E-commerce, taking online surveys, tutoring and dog walking/sitting are examples of ways millennials can earn extra income,” he said. “Knowing that extra income has the specific purpose of providing economic freedom in the future can make it easier to commit the time needed to sustain that side gig over time.”

Use Retirement Planning Software To Ensure You Stay on Track

“Retirement preparedness can be evaluated through any number of planning software online,” Schrader said. “Many employers offer calculators or planning services, and if you are thinking of adjusting contributions, it’s worth running the numbers.”

Look For Ways To Optimize Your Retirement Portfolio

Another thing to look for is the offerings inside your retirement plan, Schrader said.

“Does your employer offer lifetime income options such as annuities in your plan? If so, consider layering in part of your systematic contributions to build future income,” he said. “Annuities give you income you can’t outlive in your retirement years, and institutionally priced in-plan options can be very beneficial.”

“You could also consider different savings opportunities,” Schrader continued. “If you have a high deductible health plan, you could look into the options available through a Health Savings Plan (HSA). HSAs can give you a triple tax benefit. Contributions are pretax when they are made, growth inside the account isn’t taxed and withdrawals aren’t taxed if used for qualified medical expenses at a later date. One of the best things about HSAs is that they are a permanent account that you can carry through the years into retirement. If you’re already making contributions to your retirement accounts in 2021, HSAs give you the opportunity to put away an additional $3,600 per year for an individual or $7,200 for a family.”

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Last updated: Oct. 13, 2021 

About the Author

Gabrielle joined GOBankingRates in 2017 and brings with her a decade of experience in the journalism industry. Before joining the team, she was a staff writer-reporter for People Magazine and People.com. Her work has also appeared on E! Online, Us Weekly, Patch, Sweety High and Discover Los Angeles, and she has been featured on “Good Morning America” as a celebrity news expert. 

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