The Millennial generation -- defined generally as those born between 1982 and 2004 -- doesn't have it easy. Sure, the youngest are only about 12 years old now, and probably more worried about an upcoming math test than about money or retirement; but the oldest are in their mid-30s, and are very likely to have financial concerns on their minds. So it's probably not welcome news that some studies are warning them they'll need to accumulate a lot of money for retirement -- close to $2 million, in fact.
How much to accumulate -- and why it's hard
Learning that you'll need to amass a huge nest egg in order to retire comfortably is bad enough, but making matters worse is that Millennials are being crushed under a load of student-loan debt. Per Time magazine: "In 1993-94, about half of bachelor's degree recipients graduated with debt, averaging a little more than $10,000. This year, more than two-thirds of college graduates graduated with debt, and their average debt at graduation was about $35,000, tripling in two decades." Yikes!
That's a big problem, because it's hard to sock away money for your future when you're busy making hefty interest payments. It's also hard to save for more-pressing needs, such as a down payment on a house.
It's best not to just blindly accept anyone's estimate of how much a generation needs to sock away. Much depends on factors such as your current age, when you want to retire, how much income you'll need in retirement, and where that will come from, and so on.
A very rough rule of thumb has suggested that a comfortable retirement can be had with a $1 million nest egg, but newer studies are now positing that $2 million is better -- especially for younger folks whose retirement is far away. It's not worth trying to pin down a precise number while you're still young, but it's smart to have the larger, rather than smaller, goal in mind as you save.
Good news -- and lots of it
Fortunately, despite all that you need to save, and a possible significant student-loan debt load, you can still achieve a very comfortable and happy retirement. The chief reason is this: time. If you're still in your 30s, that means you probably have at least 30 years until you retire, and you may have 40 years. You can do a lot with relatively little over such long periods.
First, though, take care of that debt -- pronto. You can't make it magically disappear, but you can work extra hard to pay it off, perhaps even taking a second job temporarily. Paying off your debt and paying your regular bills on time, too, adds an extra bonus: You'll build a positive credit record, and with a high credit score, you'll be offered good interest rates when it's time to take out a car loan or get a mortgage.
Once you're ready to start socking away money for your retirement, do so aggressively -- because your earliest invested dollars have the most time in which to grow, and can be your most powerful dollars. Consider, for example, that a single $1,000 investment will grow to $6,700 over 20 years at an annual average growth rate of 10%. But over 30 years, it will grow to about $17,500.
An online calculator can help you estimate how much you can accumulate in different scenarios. I like to use this especially simple one. It's meant to calculate interest, but you can swap in your expected investment growth rate for the interest rate, and then try out different savings levels. For example, if you start with $0, sock away $6,000 per year, and expect it to grow by 8% annually, on average, over 30 years, you'll end up with $734,000. If you average 10% annually, you'll eventually top $1 million. If that doesn't seem like it will be enough, you'll need to save more aggressively.
Sure, it might be hard to save $6,000 annually right now, but is it possible? If it is, consider trying to do so. If it isn't, then save what you can -- but aim to keep increasing how much you save and invest, perhaps by directing all or most of your raises and bonuses to savings. Don't worry about possibly socking away more than you need to -- that might help you retire extra early. A general rule of thumb has been to save 10% of your income, but many advisors suggest that's too little, and advocate saving 15% or more, instead.
Take advantage of available help, too, such as tax-advantaged retirement accounts. Roth IRAs and Roth 401(k)s will let you ultimately withdraw money in retirement tax free, while many 401(k) plans offer matching contributions from employers -- which is free money. Remember, too, that you'll likely have Social Security money coming to you in retirement. It's worth visiting the SSA.gov website every few years to get the latest estimate of what you can eventually expect to collect.
Finally, be smart about investing. You don't have to become an expert stock picker, but you shouldn't just let cash accumulate uninvested, either. A simple and inexpensive broad-market index fund -- such as one based on the S&P 500 -- will deliver market-tracking performance.
It's not easy to be in the Millennial generation these days. There are considerable financial hurdles to overcome. The good news, though, is that with a little planning and discipline, it can be done -- and young people today can look forward to a rosy retirement.