If you’ve read anything in the news about what a Millennial retirement will look like, you’ve noticed a widening preparation gap between Millennials and their predecessors at a similar age. Why is this?
Stated simply, most Millennials don’t get excited by the prospect of delaying gratification and saving consistently to reach some eventual goal 40+ years in the future. Blame long-term unpredictability and social media.
Instead, we want a more fulfilling life, bursting with experiences. We want financial independence without having to follow this traditional retirement path. Truthfully, we just don’t know what tomorrow will hold.
As a result, we’re more inclined to delay gratification a bit less than our predecessors and indulge more. YOLO (you only live once), right?
And while this might be true of our generation, there are some other frictions Millennials have with preparing for a traditional retirement.
Namely, the amount of student loan debt we took on and the low wages most of us have come to accept. Not all of us qualify for the Public Service Loan Forgiveness program. Then again, not many do at all.
Another difficulty we face is career advancement. Baby Boomers are living longer and therefore choosing to work longer if they have the opportunity. This keeps their minds engaged while also providing more financial resources for their needs. Certainly a win for those who can continue working.
However, this effect can have implications for the career opportunities of those waiting in line behind them. If Boomers are able, many are ‘semi-retiring’ and remaining attached to the labor force. And why shouldn’t they? If they are in need and have the skills necessary to perform the required tasks, they shouldn’t retire.
While not always the case, many companies should welcome keeping their experienced workers longer. Doing so would prevent facing a knowledge and skills gap from these departing workers.
Stated differently, phasing into retirement adds flexibility in the workplace. It allows companies to continue meeting their customers’ needs while transferring knowledge from departing workers to their successors. However, this is a double-edged sword.
For those seeking employment, these positions are likely being filled for longer by someone who can’t afford to retire at this time. This delays bequeathing their roles to those next-in-line.
This forces the Millennials and Gen-Xers below them in the corporate pecking order to wait longer for promotions and pay raises until Boomers finally walk out the door. Millennials and Boomers need those higher wages sooner rather than later if we want to learn how to build wealth through compounding returns.
We also have a tenuous relationship with work because we can’t seem to find it as easily as our predecessors. Instead, we’re forced to learn new skills, build our person as a brand and take up side hustles to make up for the difference to have any hope of getting ahead. We’re learning firsthand the differences between 1099 vs. W-2 work.
This is where I see the opportunity for Millennials to redefine what normal retirement will look like for us. I don’t foresee us sailing off into a sunset to leave everything behind like so many Boomers hope to do.
I see us using unique skills and experiences to side-step solely pursuing traditional corporate advancement. I see us forging our own way. I see us pursuing financial independence as a means for reaching the Millennial retirement we deserve.
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Financial Independence and Millennial Retirement: Redefining the Concept
For the reasons laid out above, the retirement definition will need to shift for Millennials. That’s partly because when you look at the amount of Millennial retirement savings, the results aren’t great.
But it’s also because we can’t expect the same financial support programs that have helped others. We don’t have the guarantee of a social safety net there to catch us if we fall behind. Sam at Financial Samurai views Social Security like buying a lottery ticket. I am not quite as pessimistic, but I tend to agree with the notion of feeling lucky to get meaningful benefits from the program. Unsure of how the future will unfold, I hold an unconscious bias for wanting to forge my own way built upon self-reliance.
The truth is, we don’t know what may come to pass- but it likely isn’t the status quo, because our country can’t afford it. Because of these trends, our retirement plans must change.
With difficulty seeing what’s in our immediate future, let alone 40+ years down the road, we face hard money decisions our forebearers simply didn’t.
For most of us, we’re caught in a conundrum of deciding if we should invest or pay off student loans. And homeownership? Once we escape the realm of choosing between a condo vs. apartment, maybe someday.
How many Baby Boomers had to navigate student loan consolidation or the Federal loan system writ large? My guess would be a lot fewer than us.
Baby Boomers went to school in droves at affordable prices. They managed to make respectable livings by advancing their careers, earning pay raises, and saving money along the way.
And those who didn’t? About 25% of Baby Boomers cite having a pension available to them. Many will also receive Social Security and maybe have a bit tucked away in their 401k and individual retirement account (IRA) plans.
This isn’t to say all Boomers will live comfortable retirements. There are many who still need to work to make ends meet because they don’t have enough saved for retirement.
In the Millennial vs. Baby Boomer retirement debate, the point I am trying to stress is we are being forced to rely more on our own preparation for our own retirement than our predecessors.
We are a generation forced to make its own way in the world- more so than Baby Boomers or Gen-Xers. It is up to us to seize this challenge and capitalize.
While our story is still being written, it’s clear- because we’re waiting to start saving, we won’t have an easy time. Compound this further because Millennials have a fear of stocks last seen in those who grew up during the Great Depression.
If we can’t change the hand we’ve been dealt but want a different expected outcome, we need to do something different. Something unconventional. We need a new vision for what retirement can be for our generation.
Financial Independence Means Living Life on Your Own Terms
When I think about retirement, I don’t target some specific age when I know I’ll leave the workforce. Despite setting aside the maximum in my retirement accounts and knowing how to save money for other priorities, I don’t know if I’ll have a ‘magic day’ where I permanently part with my coworkers and head for the back nine.
And if I’m being honest, that sounds boring. I don’t find driving a golf cart into the rough looking for an errant ball as the ultimate reward for my life’s work.
Instead, I’d prefer to reduce my stress now by pursuing more projects or work I find rewarding. Assuming adequate preparation for retirement, I have no intention of punching the clock one last time, strapping on my gold watch, and disengaging for my remaining golden years.
Therefore, I propose Millennials redefine the retirement definition to one which means pursuing financial independence and living your best life. That’s the mission of my site and how I plan to live my life.
If we redefine retirement to mean reaching financial independence, we can challenge conventional wisdom. We can redefine how to earn, spend, save and invest not only our money, but our time. Doing so would establish a solid financial foundation from which to live our best lives.
Along the way, Millennials will need to learn as much as they can about finances and question the accepted wisdom about money, work, and retirement. For our generation’s new retirement definition, most current advice is incorrect, incomplete, or out-of-date.
Instead, we should create strategies for reaching financial independence.
4 Strategies to Make Sure You Reach Financial Independence as a Millennial
- We need to control our spending and learn how to budget. The easiest dollar earned is the dollar not spent. Controlling our spending with practical money management skills and financial literacy are the items within our control and are the biggest levers we can pull to increase our saving rate. We need to learn how to optimize our tax returns by claiming self-employment tax deductions, mastering our understanding of MACRS depreciation tables and Section 1231 property for our small businesses. And if you have that FOMO bug and want to see those exotic place, I suggest checking the Reddit churning community for travel hacking ideas.
- Learn how to start investing money. Conventional wisdom says to reach a safe retirement by the age of 67 (current age for full Social Security benefits), you should save 15% of your income for 40+ years. That’s not a bad choice. 15% should get you to those endless rounds of golf. However, there’s no guarantee Social Security will exist in its current form when we reach our 60s. If you want to live the life you want, I’d suggest tripling that savings rate. Perhaps consider investing in target date funds, and realizing financial independence won’t happen overnight. However, it is imperative to learn how to live within your means and develop side hustles because this will go a long way.
- Have side hustles create variable income. We should develop unique, in-demand skill sets and find side hustles which create variable income. Building these side hustles can reduce our dependency on a permanent job and give us freedom to pursue what we want most in life. Another way to ween off Form W-2 income is to create passive income streams.
- Create passive income streams and learn how to pay zero tax on some of them. Passive income is the best type of income because you can earn it while you sleep. Also, specific types (real estate or business activity in which the taxpayer doesn’t materially participate) receive the same preferential tax treatment as long-term capital gains. The general definition of passive income contains many forms: real estate, dividends, alternative assets, bonds, etc. Creating as many various ways to make money without having to play an ongoing, active role in earning it is paramount for financial independence.
To reach financial independence, we should have investments and income streams which produce enough income to cover our cost-of-living and leave room for growth.
If we’re lucky down the road, we can throw in slimmed down Social Security and Medicare benefits for good measure. Learning to create a budget in Excel, invest in index funds, develop profitable side hustles, and build passive income streams which work for your benefit is the surest path to a secure Millennial retirement.
Financial Independence Means Having No Regrets
I wonder how many current retirees look back in regret about having worked a job they didn’t like for so many years and wished they’d done things differently? My bet would be a lot.
Life doesn’t often give you mulligans, so I don’t intend to postpone my satisfaction in the hopes of one day reaching a traditional retirement. I want to pursue financial independence and have the financial freedom to do what I want.
If Millennials are smart, we’ll learn to hustle and save. This is what many of us will have to do to enjoy a Millennial retirement. This is also the way to get what we want most of all: living life on our own terms.
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Readers: What do you see as a Millennial Retirement? How are you planning to reach it? Please leave your thoughts and comments below as well as please consider subscribing to this blog.
About the Author and Blog
In 2018, I was winding down a stint in investor relations and found myself newly equipped with a CPA, added insight on how investors behave in markets, and a load of free time. My job routinely required extended work hours, complex assignments, and tight deadlines. Seeking to maintain my momentum, I wanted to chase something ambitious.
I chose to start this financial independence blog as my next step, recognizing both the challenge and opportunity. I launched the site with encouragement from my wife as a means to lay out our financial independence journey to reach financial independence and connect with and help others who share the same goal.
Some of my favorite things to discuss include investing in index funds, how to save money, travel hacking with help from the Reddit churning community, house hacking and optimizing the benefits of my condo vs. apartment living, and tax topics like the earned income tax credit, common tax deductions, tax reform in 2018, or other useful tax topics. I want this to be a journey for us all to learn how to make a lot of money and pursue the lives we want.
I have not been compensated by any of the companies listed in this post at the time of this writing. Any recommendations made by me are my own. Should you choose to act on them, please see my the disclaimer on my About Young and the Invested page.