Millennials have gotten a lot of attention (good and bad) over the past decade for their “slack”, job hopping, mountains of student debt, and FOMO culture. But millennials are growing up, and many of them are prioritizing financial independence and thinking hard about their retirement path. Perhaps unsurprisingly, they had a different idea of what the road and final destination would look like than generations before them.
Millennials are more likely to prioritize travel over homeownership in retirement, according to a new Schwab study. They want the freedom to use their savings to pursue the lifestyle and passions they want, not financial stability. They need flexibility and new experiences more than traditional retirement pursuits.
The Millennial Path to Retirement
As for ways to achieve these unconventional goals, millennials are also looking for flexibility in that regard. They don’t pay much attention to a specific retirement savings amount. Instead, they see the accumulation process as more of a continuum, and they want to pursue their passions on the road to retirement — not just retirement. Plus, they’re less interested in preserving wealth in retirement and don’t spend as much time managing their investments as baby boomers.
Some of these millennials’ preferences don’t seem to align with responsible retirement goals, but it’s a generational move. To their credit, millennials have started saving earlier than their predecessors, and many have stepped up their engagement and focus on financial planning during the pandemic.
It’s also worth noting that millennials aren’t just retiring because they can rewrite the script. Major economic and social shifts are driving these changes in the way young people approach money, careers and life. They encountered different challenges than previous generations. Home-buying costs have risen, pension plans have dwindled, and student debt has skyrocketed — just to name a few.
Tips for Helping Millennials on the Path of Life
The road to retirement becomes more challenging over the lifetime of millennials. The good news is that many timeless financial planning strategies can be easily adapted to their needs.
Here are the top tips I share with millennials for achieving the retirement dreams:
- Save some cash: The first step in planning for one’s financial future is to create a financial buffer to prepare for the inevitable disruptions life brings. A few months of savings is a great place to start an emergency fund.
- Focus on your finances statenot your retirement date: Don’t think of retirement as an arbitrary date to flip a switch and start retirement. Instead, aim for a financial situation that provides the flexibility to make work optional. It looks like you’ve saved enough money at 60 to stop working if you need to, but you’ll keep working and saving until you’re emotionally ready to retire. It’s important to run the numbers to figure out how much is needed to feel comfortable. From there, adjust your savings accordingly to increase your reserves.
- Grow and protect it: We all want to increase our savings and investments to sustain us throughout our lives. But don’t neglect to protect what’s already there. There is no such thing as a “sure thing”, which means that diversification is important for both potential growth and stability. Don’t risk more than you can afford, and be prepared to reassess your risk tolerance as you invest.
- Don’t be derailed by FOMO: Hot new investment trends can be very tempting, but getting caught up in the pursuit of shiny possibilities can lead to setbacks that limit future potential. Remember, investing is about helping build capital over time to achieve your goals, not speculating or chasing fads.
- Long and short: Retirement planning is a long process that takes time and patience. It also requires flexibility to adapt to changing circumstances. No one can predict all the challenges of the future, or that their future self may be different from their present self. Make a plan and revisit it at least once a year, knowing that changes will occur along the way.
Like Baby Boomers and Generation X, Millennials have distinct generational characteristics that make them unique, but at the same time they are not monolithic. Millennials will take many different approaches and paths to retirement. Their personal lives will take unexpected twists that may change some of their goals.
Whatever the ideal destination, sound financial planning that starts early is the key to success. This will never change.
A diversification strategy does not ensure profits, nor does it prevent losses when the market falls. Investing involves risk, including loss of principal.
Schwab Smart Portfolio Expert, Schwab
Amy Richardson is a CERTIFIED FINANCIAL PLANNER™ Professional and Schwab Smart Portfolio Specialist. Amy focuses on providing internal teams, clients and prospects with education, updates and information on Schwab’s investment products and philosophies, including Schwab Intelligent Portfolios (Schwab’s automated investing service) and Schwab Intelligent Portfolios Premium (which combines automated investing with comprehensive financial planning and Unlimited Guidance) from a CFP® Professional).