How Can Millennials Save More for Retirement?

Jeff Clark, CFP®

Millennials face tough challenges when it comes to saving for retirement. The generation in their 20s and early 30s is graduating from college with record amounts of student loan debt. Other goals, like getting married or saving to purchase a home, loom larger than retirement, competing for any extra money at the end of the month.

Starting with the Baby Boomer generation, pensions have become a thing of the past, leaving the responsibility to save squarely on the shoulders of the individual. To add a layer of difficulty, a 2016 Wells Fargo study found that 74% of Millennials doubt Social Security benefits will be available to them when they retire.

The Baby Boomer generation (born between 1946 and 1964) has not modeled the best savings habits either. The Insured Retirement Institute reported in 2016 that only 24% of Boomers are confident they will have enough savings to last through retirement, with 45% reporting no retirement savings at all.

When asked what they would do differently, 67% of those lacking confidence in their savings wished they had started saving earlier.

Start Saving Today

By planning ahead Millennials can avoid expressing the same regrets. In spite of the challenges Millennials face, finance author Alessandra Malito advises them to start saving small amounts today:

Throw a few dollars toward a retirement saving now, build the habit of consistently saving and contribute more when more money comes your way, experts say. It may also seem discouraging to contribute only $5 or $10 a month or seem completely worthless, but it’s not.

The best strategy for a very long term goal like saving for retirement is to begin when you can, at the pace you can, and course correct along the way. It’s a marathon, not a sprint, and the key is to get started.

Read More: To Reach your Goals, Take Them One Step at a Time

If you’re a millennial feeling pressure to save more, don’t beat yourself up if you can’t immediately contribute 10% of your income to retirement. But don’t become complacent and put off thinking of your future altogether either. Start by contributing ~3% of your income if that is all you can do. You may not be able to sprint out of the gates, but you can walk. Maybe you can’t max out your IRA contribution with $5,500 this year, but could you create an automatic transfer of $50 per month?

While you may start small, plan to increase your savings rate over time. The immense advantage millennials have over older generations is time. Every dollar you stash away for retirement now has a longer time period to potentially grow. Therefore at the outset of managing your finances the dollar amount you save is important.

But if your savings rate is discouragingly low (or negative) it’s worth recognizing that over time your earning power should increase, creating more disposable income. Committing to the practice of saving something today and increasing your savings rate tomorrow could be the key to retiring well.

Save More Tomorrow

A successful program called “Save More Tomorrow” designed by professors from the University of Chicago’s Booth School of Business painlessly automates increased retirement savings. Behavioral economists Richard Thaler and Shlomo Benartzi wondered if they could increase 401(k) savings by asking participants to commit today to saving more tomorrow.

In the program employees with low savings rates committed to saving a percentage of any future pay raises. The study found that starting small and intentionally building deposits over time worked phenomenally well. Over a three and a half year period participants on average upped their savings rate from 3.5% all the way to 14.5%, a fourfold increase!

Rather than lamenting the inability to save more right now, focus on building the good habit of investing something for retirement today. By honing the habits of planning for the future, delaying gratification, and saving for tomorrow you’ll already be well ahead of your peers, and well on the way toward retiring with dignity.