How Can Millennials Start Planning for Retirement?

Madison Mingus

Last Updated: May 18th, 2021



Millennials are often the brunt of internet memes and office humor. I should know, I'm a millennial myself. This group born between 1981 and 1996 are given unique opportunities, yet face unique financial challenges that generations before them simply did not. Technology has opened the door for some amazing advancements, yet modern income levels have not mirrored the same sort of acceleration.

For example, the average salary of a millennial today is an estimated 20 percent lower, than the average salary of a baby boomer at the same age. Low salaries, rising debts, and increasing costs of living leave millennials at a financial disadvantage when it comes to saving for one of the most important things — retirement.  

If you yourself are a millennial, you need to be proactive about becoming financially savvy and thinking towards the future. Saving for retirement now in this early stage of your career is critical to your retirement planning success, because you can leverage the power of time and compound growth.

  • Why is it important to get started early?
  • 35-Year Investment Growth Table
  • Where do I start with retirement planning? 

Why is it important to get started early?

Time is one of the most crucial elements of investing. The more time your money has to grow, the more interest you’ll be able to accrue on your investments.

Sure, the stock market can be volatile over short time periods, but on average a diversified index fund grows by about 10 percent. If you let your investment sit for years, the dips and highs of the stock market will eventually adjust to a healthy return, but you just have to be patient.

The personal finance expert at Semi-Retire Plan, Mr. SR, lays out what investing can look like if you get started early.

“For the simplicity of this example, let’s say that the stock market consistently grows by 10 percent each year. 

Let’s say you invest $5,000 at the beginning of each year and achieve that 10 percent growth per year. That 10 percent growth during the year equates to $500, so you’ll have a total of $5,500 after that first year.

The next year, you’ll invest another $5,000, plus your existing $5,500 also grows by 10 percent. In year two, you’ll have $1,050 in growth." 

Over time, the growth of your investment will actually outweigh the money that you’re putting into your portfolio each year. 

Let’s extend this example for a period of 35 years. Check out the $ growth and Total amount in account columns, in particular."

35-Year Investment Growth Table

Year #

New money invested at the start of each year

Total money invested during the year (previous total + new money invested)

Percentage growth 

$ growth

Total amount in account at the end of the year

















































Before year 10, the annual growth in the account starts to exceed the amount you’re contributing to the account. 

After year 25, your annual growth starts to exceed $50,000. 

After year 30, your account balance is over $1 million. 

By the end of year 35, your account has nearly $1.5 million. And you only contributed $175,000 total.

This is why they call compound interest the seventh wonder of the world. Over time your money will earn more than you’re able to contribute on your own. Saving for retirement can become a much for achievable goal if you use the power of compound growth. Use the time that you have to your advantage. 

Where do I start with retirement planning?

Here are some practical steps you can take to start planning out retirement. 

1. Take advantage of matching/free money 

Many employers will match a certain percentage of your retirement account contributions. Take advantage of that small percentage that they are willing to match and reap the rewards of the free money.

Even if you can’t yet afford to contribute a large percentage of your income to retirement savings, make it a priority to earn the employer match if it’s offered.

Mr. SR, the personal finance specialist, says that, “Ideally you’ll work your way up to contributing at least 15 percent of your income to retirement savings.

Different experts will recommend different percentages for retirement savings. Personally, I like to save about 20 percent. Aspiring early retirees may save 50 percent or more. Either way, your personal savings rate should ultimately reflect your target retirement age and retirement expenses.”

2. Create an emergency fund 

After you qualify for the full employer match, set some money aside as an emergency fund. 

You don’t want an unexpected expense or job loss to cause you to go into debt. Even though an emergency fund isn’t “saving for retirement,” it does protect your investments and it protects you from accruing high-interest debt. 

Here is a great video that gives a quick overview of how to prepare for a financial emergency.


3. Pay off and consolidate debt 

Speaking of debt, your early career years are a great opportunity to focus on limiting and eliminating anything you owe. 

One of the best ways to consolidate multiple debts is by following the avalanche method:

  • Focus on clearing your smallest debt first while making minimum payments on the other debts. 
  • Once you’ve paid off the first debt, allocate the amount you were paying toward the first debt into the second smallest debt on the list. Focus on paying off this second debt.
  • You then keep snowballing your payments until each subsequent debt is finally cleared.

In addition, if managing all of your different debts is giving you a headache then considering consolidating all of your debts with a personal loan. A personal loan can be a great option to simplify debt and refinance for a lower APR rate. It’s one payment to worry about and a possible alternative to the avalanche method.

4. Consider tax-advantaged accounts

When it comes to additional retirement investing, any tax-advantaged retirement account you qualify for will be better than a taxable brokerage account. 

However, choosing between the different tax-advantaged accounts can feel perplexing, personal finance expert at Semi-Retire Plan breaks down different retirement accounts that you should look into. 

“Early in your career, Roth accounts (like a Roth IRA or Roth 401k) can be advantageous. 

Roth accounts let you pay income tax on money now but then the growth in the account is tax-free. At a basic level, Roth accounts are a good option if you think your current income is lower than your income will be in retirement. 

Conversely, tax-deferred accounts like a 401k or 457 let you avoid income tax now — but you will pay taxes on the money and growth later when you withdraw it from the account. These tax-deferred accounts can be most helpful when you’re at or near your highest-earning part of your career because you’ll defer the taxation until later when your income will likely be lower.”

5. House hack if possible 

Another factor you may have more flexibility with in your twenties and thirties is your housing arrangement. 

This age range can create an opportunity for income or savings through “house hacking.” Typically this involves buying a property that you live in and also sublet to tenants. Then, you can essentially reduce or eliminate your monthly housing costs with the income from your tenants. 

I would argue that even renting with multiple roommates is a housing hack, in a way. You can drastically reduce your personal housing expenses this way, even without owning the property. 

The trickiest thing about this method is finding the right tenants. If you have tenants that are not the most respectful to your house and amenities, maintenance fees can start to add up. Start by screening tenants with a detailed application, here is a free rental application that can be used a great starting off point to find the perfect tenant.

6. Stick to your plan 

After reading through this article my hope is that you will start to understand the strengths and weaknesses of your current retirement plan — or the lack thereof.

Perhaps you are an investing guru, but you haven’t considered house hacking.

Or, maybe you’re about to finally pay off that pesky college debt, but don’t know how to take advantage of an employer match. 

Wherever you are in your personal financial journey, use these tips to effect change in your own life. You may approach these tips out of order, but the important thing is to recognize where you are lacking on your journey to retirement and make some actionable steps today to improve. 

Make a plan and stick to it. Retirement saving is a marathon, not a sprint.

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