Arizona Financial Advisor Kevin Canterbury Discusses the Millennial Balancing Act

 

A large percentage of younger generations hope to retire early, but is it realistic? According to a Charles Schwab survey of 2,000 millennials between the ages of 16-25, most millennials plan to retire by 60. This is is four years before the current national average for retirement and seven years before Social Security’s “full retirement age.” However, when we look at the average millennial’s savings, retiring at 60 may not be in the cards. The National Institute on Retirement Security has found that 66% of individuals between the ages of 21-31 have nothing saved for retirement, with Fidelity sharing 2019 fourth-quarter statistics showing that millennials have an average 401(k) balance of $10,500 and are currently saving just 7% of their income. Although these numbers show that millennials are saving more money for retirement than the majority of young adults were five years ago, this still shows that many millennials are not on track to retire at 60. 

The fact remains that: 

- The average millennial carries roughly 39,000 of student debt.

- Most millennials entered a poor job market with limited job prospects and underpaying positions.

- More than 25% of millennials between the ages of 22-37 spend more on Starbucks coffee than they save for retirement.

- Millennials currently possess less wealth relative to their income than baby boomers, and Gen X did at their age. 

- Millennials are expected to live longer than previous generations and thus will need more money in order to retire comfortably. 

- Currently, Social Security remains underfunded and medical expenses in retirement are projected to cost hundreds of thousands of dollars. 

However, this doesn’t mean that retiring at age 60 is unattainable for millennials. Kevin Canterbury, an Arizona-based financial advisor, states that there is still hope for millennials hoping to retire early. By using what many financial experts refer to as the “Millennial Balancing Act,” millennials are able to maximize their retirement investments while continuing to reduce their student loans. 

Save for Retirement or Pay off Student Debt

Many millennials wrestle with choosing between saving for retirement or paying off student debt. For many millennials, the existence of student debt can be a major financial hurdle to overcome and significantly impact individuals’ ability to save. According to a 2018 study by the Center for Retirement Research at Boston College, millennials without student loans are able to save nearly twice for retirement by age 30 as their peers who have taken out student loans. As a result, college graduates without student loans have roughly $18,200 in retirement savings by age 30 compared to $9,100 in retirement savings for college graduates with an average student loan balance of $16,230. Even if a college graduate possesses a relatively small amount of student loan debt, studies have shown that they will often prioritize paying off the debt before saving. However, Kevin Canterbury stresses that this can be a costly mistake. Traditionally, student loans have relatively low interest rates, meaning that it is good for college graduates to make minimal payments on their student loans each month while simultaneously contributing towards retirement. Through this method, students can continue to pay off their student loans while benefiting from investing in their retirement at a young age. 

Consider Refinancing Student Loans

Within the United States today, over 44 million Americans currently hold student debt. Many of these Americans can benefit from refinancing this debt or swapping out their private/ federal student loan with a private loan that has a much lower interest rate. By refinancing their student loans for a loan with a lower interest rate, millennials will end up owing a smaller amount of money over their lifetime, allowing them to save and invest in their retirement. However, it is worth noting that many of these private programs are less forgiving than federal loan programs when it comes to missed payments. For this reason, millennials should ensure they will be able to make monthly payments consistently before refinancing. 

Always Contribute the Maximum to 401(k)s

As a rule of thumb, Arizona- native Kevin Canterbury recommends that millennials always contribute the maximum amount of their income (at least 10%) to a retirement account or 401(k). Although not every individual can put away 10% of their income into 401(k)s, contributing to a 401(k) and obtaining the employer match will double whatever money they can save. 

As of 2021, employees below the age of 50 can contribute a maximum of $19,500 to 401(k)s and $6,000 to a Roth IRA or traditional IRA. However, because most millennials fall into the lower tax bracket, they are encouraged to consider contributing to a ROTH 401(k) instead of a traditional retirement account as it will help them build their Roth nest egg for the future. 

Plan to Have 10x Final Salary in Savings 

Those who hope to retire by age 60 should have at least 15 times their annual expenses saved; however, the ultimate goal is always to have 25x of your expenses saved by the time you are ready to retire. According to Fidelity, however, those who hope to retire at age 67 should have ten times their final salary in savings. This can be accomplished by saving 15% of income at age 25 and investing more than 50% of savings in stocks over their lifetime. 

• By age 30: Have the equivalent of your starting salary saved

• By age 40: Have three times your salary saved

• By age 50: Have six times your salary saved

• By age 60: Have eight times your salary saved

• By age 67: Have ten times your salary saved