Millennials Are Behind in Saving for Retirement: Here's How To Change That
Why this generation is behind, how to catch up + 2024 retirement updates!
Have you been putting off your retirement planning?
We get it; when you have bills to pay, debt to pay off, saving for your immediate future, and student loans, it’s hard to think about another financial obligation.
But while it may seem easier to put off saving for retirement until you are in your 40s and 50s, starting the process now will give you better opportunities in the future.
A study by the Urban Institute conducted in 2022 showed that 38% of people born in the 1980s, also known as early millennials, won’t have enough income to retire once they reach the age of 70!
The lack of retirement savings is a result of many factors, including the rising cost of living and wages not rising as quickly, a later age for receiving full social benefits, longer life spans, and one of the most significant financial burdens, student loan debt.
The good news is you can start taking action now, which will help you have a more secure financial future.
That said, let’s look at your current retirement options, limitations, and how you can best prepare for your future!
Retirement options and regulations for 2024
To make a solid retirement plan, you need to know your current retirement options for 2024. Here, we break it down for you.
2024 traditional 401(k) contribution limits
Recently, the IRS changed how much money you can contribute to your 401(k). For 2024, employee contributions will max out at $23,000. This also applies to the Roth 401(k), 403(b) and 457(b) account types.
However, if you are 50 years or older, you can contribute an additional $7,500 to help you catch up. Additionally, your total contributions can not suppress your company’s annual compensation.
Refresher: How the 401(k) works
401(k) retirement savings plan are only offered by employers. With this type of account, you agree to have a portion of your money taken out of your paycheck and put into this account.
The money you put into your account is pre-tax, which means the money is deducted from your gross income. Why does this matter?
Because your contributions are pre-taxed, your total contributions for the year can help reduce your taxable income. You can also report your contributions at tax deduction for the year.
As you can see, saving for retirement now doesn’t just have advantages for the future.
An advantage to this type of account is that many companies (not all) will often match the amount of money you put in up to a certain percentage.
There are also two other similar retirement accounts types:
403(b): Specifically offered by non-profit employers to people employed by public schools, churches, or charities.
457(b): Designed for individuals working in civil service, law enforcement, and various roles within government agencies, public services, and certain nonprofit organizations, including hospitals, religious institutions, and charitable groups.
Roth 401k note: A Roth 401(k) is similar to a traditional 401(k) as it’s an employer-sponsored account. However, the money contributed to a Roth 401(k) is taxed before it is added to the account. Which means that when you are ready to withdraw money upon retirement, the money is tax-free.
2024 IRA contribution limits
For 2024, the IRS contributions limitations for IRAs are $7,000 under 50 and $8,000 annually if you’re 50. This applies to both the traditional and ROTH IRA account types.
Refresher: Traditional IRA vs Roth IRA
The Individual Retirement Account or (IRA) is an excellent option if your employer doesn’t offer a 401(k) plan or you have your own business. It is a separate retirement account that allows you to save money for retirement and isn’t connected to an employee.
Two widely favored IRA options are the Traditional IRA and the Roth IRA. In the case of a traditional IRA, the money put into the account is not taxed, and you can claim a tax-deductible on the amount you put in. Remember that your money will be taxed when it’s taken out during retirement.
With a Roth IRA, you pay taxes on the money you put into the account. However, when you take out money for retirement, that money is tax-free.
*You can contribute to multiple retirement account types e.g. both a 401k and IRA.
**Remember that for pre-tax accounts like the 401k, 403b and traditional IRA, your money will be subject to taxes when you make withdrawals during retirement.
7 Steps to help you start saving for retirement
Now that you are aware of the contribution limits for 2024, here are some steps to help you ease into a better retirement.
1. Start saving as soon as possible
The easiest way to get started is to see if your employer has a 401K option for you. If so, consider making the maximum contributions if you can. If your employer has a matching program, contributing more money can increase your earnings.
If you can’t contribute the maximum, consider contributing what you can. You can gradually increase your contributions as you work and earn more.
For example, you can increase your contributions by a percentage point every quarter.
2. Determine how much you need to save for retirement
To give you a better idea of how much you need to save, take a moment to consider what your life will be like after retirement. Consider factors like where you’d like to live, your desired lifestyle, and current financial habits.
Calculate your expected expenses and determine how much money you’ll need to live comfortably in retirement.
Here are a couple retirement calculator options you can leverage:
3. Plan, prioritize, and protect your investments
Adopt the three P’s approach to retirement savings:
Plan your goal
Prioritize saving
Protect your retirement funds
Plan your goals
Plan your savings goals by considering how much you’ll need to retire and layout the specific actions you’ll need to take to achieve your short term, mid term and long term goals.
Prioritize saving
Spending your money is tempting, but you must also prioritize your future. Prioritize saving by making it a part of your budget. Look at what expenses you can cut back on and how you can increase your income to meet and accelerate your savings goals.
Protect your investments
One thing that can quickly eat away at your retirement savings is an emergency or an unexpected event.
So focus on creating an emergency fund to prevent you from using your retirement savings for unplanned expenses. With a separate fund, you’ll have allocated funds for hard times and won’t have to dip into your retirement savings.
4. Get help from financial experts if needed
You already have a lot on your plate, with managing a career, budgeting, and taking care of life responsibilities.
If you need guidance as you layout your long term goals, working with a financial expert can make the process of saving easier and more accessible.
A professional financial advisor can help you discern your goals and help you find options that best fit your needs.
The Certified Financial Planners Board is a great resource to find professional help.
5. Pay down your debt
As mentioned before, student loan debt is one of the main barriers keeping millennials from saving for retirement. However, imagine how much your retirement savings could grow if you put the money you used toward debt into your retirement savings.
You’d probably have a good chunk of savings. To help make this idea a reality, focus on eliminating debt, depending on which type of debt you have.
Spend some time and create a debt payment strategy for your student loans, credit card debt and larger debts such as mortgage payments. With a strategy, work it into your budget, and plan to more than the minimum on your debt.Â
For student loan debt, you can look into student loan forgiveness plans if you qualify but keep in mind forgiveness does not often happen.
6. Increase your income
Consider increasing your income if your current salary doesn’t allow you to put extra money aside for retirement. You can earn extra money by:
Starting a side hustle
Asking for a raise
Creating passive income
Working a part-time job
Remember to be intentional with the extra money you earn. You can create a separate account that directly funnels your earnings so you’re not tempted to spend it.
7. Explore options for places to live in retirement
We know you may love where you live now. However, depending on where you live, the cost of living may increase over time. Fortunately, many affordable places to live offer many advantages for those who retire.
Start researching locations that offer a lower cost of living, low tax rates on pensions and social security benefits, and specific amenities you’d like to have during your retirement.
Your retirement may be several years away, but it’s important that you start planning now - your future self will thank you. Use these steps to begin implementing your retirement plan.
If you need more financial support, check out completely free courses that will help you create a financially stable future.
