By Aaron Cirksena, Founder & CEO – MDRN Capital
A recent report from Northwestern Mutual reveals that many millennials are facing a significant retirement savings gap. The report found that the average retirement savings socked away by millennials is $62,600, which is not a paltry amount considering the youngest members of the generational group are still in their late 20s.
However, the report also revealed that millennials believe they need $1.65 million to retire comfortably. Hitting that number means investing more than $500 per month for 30 years, which is a big number for a group that earns less than $4,000 per month on average. When you add to the mix the fact that 66 percent of working millennials have nothing saved for retirement, the gap widens.
If you find yourself facing this gap, don’t give up hope. You can still make your retirement dreams a reality if you’re willing to make the changes needed to increase your momentum.
Be Honest About Your Current Trajectory
Thomas Jefferson said, “Honesty is the first chapter in the book of wisdom.” You could also refer to it as the first step in getting your retirement savings on track.
Start with an assessment of what you’re doing now in the area of retirement savings and where it will get you if you continue. There are a lot of free online retirement calculators that can help with this by factoring in where you’re now and where you want to go so you can know what kind of financial contributions you should make.
For example, if you’re 33, making the average millennial salary of $47,034, and have an average retirement savings of $62,600, NerdWallet’s retirement calculator says you’ll need to be contributing $754 per month to get to $1.65 million by age 67. If you haven’t yet started your retirement savings at 33, you’d need to contribute $1,040 per month to get to $1.65 million.
Spending some time with a retirement calculator can help you see just how much fuel you’ll need to put into your account to get where you want to be. If the numbers don’t add up, you’ll either need to change your expectations or your situation.
If you don’t have the available funds to hit your contribution goals, cutting back on other areas of your budget is a good place to start. Getting rid of debt — and making a commitment to not take on more — can be helpful in this area. On the extreme end, you might need to consider a career change or a side hustle to increase your income to a point where you have enough to fund your retirement.
Be Consistent With Your Contributions
“Save early and save often” is a simple mantra that can propel you toward a healthy retirement. As a millennial, you can probably still accomplish the “save early” component, but even if you’re in your mid-30s, you still have a few decades to allow compound interest to work for you.
The “save often” component calls for consistency. It is founded on the fact that investing a small amount each month is generally more effective than occasionally investing a larger amount.
Staying consistent with your investing can be difficult for a number of reasons. Your emotions will be one of the biggest challenges. If markets are performing poorly — which you’ll know when you look at your monthly retirement savings report — you can easily feel anxious about your losses and reluctant to stay committed to giving. Unexpected expenses can also trigger fears that cause you to second-guess your decision to give a few hundred dollars each month to your retirement plan.
Emotions are not helpful when it comes to financial decisions. Don’t let a temporary setback disrupt plans you have thoughtfully laid out. At the very least, seek other ways to address unexpected financial demands, leaving adjustments to your retirement giving as a final option.
Automating your giving is one way to help remove emotions from the mix. Employer-sponsored 401(k) accounts often allow you to have funds automatically removed from your paycheck and deposited in your retirement account. Leveraging that capability can help you stay consistent with your giving.
Stay Engaged With Your Progress
While checking the value of your accounts daily is not advisable, you should schedule regular times to review the progress of your investments. This can involve not only tracking the value of your accounts but also reminding yourself about the commitment you have made and what it means for your future.
If you’re working with an advisor, meeting at least once a year will help you understand how your portfolio is performing and explore any rebalancing you might need to do. You also may want to touch base with your advisor if you experience a significant change in your income or if the markets take an unexpected turn.
For those starting from scratch, accumulating the kind of savings that can fund your dream retirement is definitely a daunting endeavor, but it’s not impossible. Committing to honesty, consistency, and engagement will propel you in the right direction and provide access to the resources you’ll need to succeed.
— Aaron Cirksena, Founder and CEO of MDRN Capital, is a 2011 graduate of the University of Maryland, College Park, where he studied economics. Since then, he has devoted his entire career to financial planning, distribution planning, and managing client money. He first worked with multiple $1 billion teams at Morgan Stanley and independent firms, and eventually created his own independent services firm in MDRN Capital, which is revolutionizing retirement planning by offering a comprehensive range of services, including income planning, investment management, tax planning, healthcare, and estate planning, all with a greater degree of effectiveness compared to traditional providers. As a fully digital firm, MDRN prioritizes efficiency and convenience by providing remote consultations and opening a digital account.
Disclaimer: This content is for informational purposes only and is not intended as financial advice, nor does it replace professional financial advice, investment advice, or any other type of advice. You should seek the advice of a qualified financial advisor or other professional before making any financial decisions.
Published by: Annie P.