5 Ways Millennials Can Know They’re on Track for a Comfortable Retirement
Written by
Andrew Lisa
Edited by
Ashleigh Ray
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While it may be hard to believe for the boomers who still think of them as America’s misguided youth, the youngest millennials will turn 30 in just two years. The oldest will turn 45.
That means the entire generation should at least be pondering their financial future in retirement, and hopefully planning and saving for it — but how can they know if they’re on the right track?
If you’re a millennial, the following signs can be good indicators that you’re building a solid foundation for future financial security. If any of this sounds like you, keep doing what you’ve been doing.
You’re Consistently Banking 15% — or Even 10% — of Your Income
The popular 50/30/20 budgeting strategy calls for socking away 20% of your income, but for many, saving one dollar of every five is not a realistic goal. The good news is that you’ll still be on par with many experts’ recommendations if you can get three-quarters of the way there.
“If you’re saving 15% of your income for retirement, you should give yourself a pat on the back because you’re on the right track in preparing for retirement,” said Melanie Musson, a financial expert with InsuranceProviders.com.
According to Charles Schwab, even millennials who bank just one dollar in 10 are primed for prosperity if they do it consistently — and Musson agreed.
“If you’re saving 10% and have been for a while, you’re still doing well,” she said.
You’re Free of Student Debt
According to the Education Data Initiative, millennials hold nearly one-third of America’s college debt, and the average millennial student borrower owes $32,800
It’s hard enough to save for retirement — but when a five-figure debt robs you of years or decades of nest egg building, the task can become insurmountable. That’s why millennials who are free and clear are ahead of the pack.
“If you’ve paid off your student loans, you’re on the right path in preparing for retirement,” said Musson. “Many people will still be working on paying off their student loans when they retire. If you have 25 years to go to retire and you’ve already paid off student loans, you’re on the right track.”
You Don’t Carry a Revolving Credit Card Balance
The average credit card APR is currently in the low 20s — more than double the average annualized stock market return in the modern era, including with dividend reinvestment.
You can’t save for retirement when you’re losing twice as much to compound interest as you’re gaining from it. The millennials who avoid that trap will enjoy a better outcome.
“If you keep current on paying your credit card balance every month and don’t have a balance that rolls over every month, you’re showing good control of your finances and avoiding high-interest payments,” said Musson.
You Own a Property With a Pre-Retirement Payoff Date
Some expenses decrease with age, but unfortunately, your biggest expense — housing — isn’t one of them.
According to the Bureau of Labor Statistics, housing consumed 35% of the average retiree household‘s total expenditures in 2022, compared to 33% for the average overall U.S. household.
Millennial homeowners who see their mortgages paid off before they collect their last paycheck will enter retirement with much lower expenses and greater flexibility.
“If you own a house and will have it paid off before you retire, you’re set up for a lower-cost retirement, making your savings last longer,” said Musson.
You Live Within Your Means
One hallmark of financial health that doesn’t change with age, income or anything else is the ability and willingness to live within your means.
Millennials are old enough that habits like spending less than they earn and indulging their wants only after contributing to their savings are already ingrained in their lifestyles.
Not only will this crucial money mentality grow their lifetime savings more than any other behavior, but it will prepare them to live on what will probably be less income without feeling like they’re missing out once they retire.
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