Note to Millennials: 5 Tips to Help You on the Road to Retirement

It might be three or four decades away, but retirement is top of mind for many Millennials. That means balancing between plans for the future while paying for today.

(Image credit: Westend61 / Zeljko Dangubic (Westend61 / Zeljko Dangubic (Photographer) - [None])

When it comes to retirement, Millennials have a lot on their minds. You might be surprised that Millennials say saving for retirement is their No. 2 financial concern — tied with the rising cost of health care — according to our most recent Advisor Authority study.

Coming of age and entering the workforce during the Crash of 2008, the Great Recession and years of unrelenting stock market volatility hasn’t done much to boost Millennials’ confidence. The recent uncertainty stemming from the global coronavirus/COVID-19 pandemic has further complicated their challenges. There are greater strains on financial markets, investments and retirement saving accounts. Millennials — generally skittish investors — now have new and real reasons to be wary.

In 2019, prior to the COVID-19 pandemic, Advisor Authority revealed that nearly three-quarters of Millennials said they have a strategy to protect against outliving their savings in retirement. However, considering today’s “new normal,” they have their work cut out for them. Trying to start a career in today’s tight job market and carve out a life while managing sky-high student loan debt and whipsawing stock markets can make preparing for the future seem like a longshot.

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Even though the global coronavirus pandemic presents hurdles right now, and there are still many unknowns about its impact, investors should have a plan for the long term and stay the course. If you’re a Millennial, the good news is that time is on your side. With nearly four decades to prepare, here are five tips to get you on the road retirement:

Make Saving a Habit

Have a monthly budget to balance necessities with the nice-to-haves — and put savings at the top of the list. Start small if you have to. Even $25 a week will add up over time. Every time you get a raise or a bonus, every time you pay off a credit card, car loan or student loan, be sure to use that extra money to save more.

Understand that Time is Money

Tax deferral helps you minimize your tax bill now and accumulate more year over year for your future. If you had $15,000 in a tax-deferred account at age 25 and contributed just $2,000 every year until you retire, your compounded savings could reach over $450,000 by the time you’re 65 (assuming a moderate market return of 6%). But if you wait until you’re 35, start with that same $15,000, and contribute that same $2,000 every year, you would have only over $240,000 by the time you’re 65. Clearly, when it comes to tax deferral, time is money.

Maximize Tax Deferral

Start early and automatically contribute to tax-deferred qualified plans, such as 401(k)s, where you’ll be able to invest pre-tax dollars in a range of different mutual funds. Pay attention to fees and keep costs low. Every dollar and every percentage point counts — especially over a long time horizon. Contribute enough to secure an employer match, if one is offered. Should you change jobs, your plan is fully portable, so you can roll into another qualified plan without any tax penalties. When you’re able to max out your 401(k), consider IRAs to save even more tax-deferred.

Stay the Course: The Potential Rewards of Taking Risk (Even Now)

Countless studies show that Millennials are less confident in the stock market than older generations. According to Advisor Authority, 57% of Millennials said they felt pressure to revise their investing strategy in the volatile market of 2019 — and more than two-thirds of them planned to invest more conservatively. With markets now reeling from the coronavirus pandemic, the pressure may feel very real to you. But there is still an opportunity to take prudent risks as part of a well-diversified portfolio. Despite the recent downturn, when you have more than 40 years ahead of you, the upside potential of stocks is far greater than bonds or cash in the long term.

Rely on HSAs for Rising Health Care Costs

With health care costs a top concern now — and in retirement — a health savings account (HSA) is another type of triple-tax-advantage savings account you can consider. Contributions to HSAs are made with pre-tax dollars, so they’re tax-deductible, they grow tax-deferred and withdrawals for qualified health care expenses are also tax-free — now and in the future. Your HSA may qualify for an employer match. And like your 401(k), your HSA is fully portable, should you change employers.

HSAs are combined with high-deductible health plans to help you control health care costs. You pay lower premiums for your high-deductible plans now and save more in your HSA. Your HSA can be used for current deductibles and co-pays, or to build up savings for health care costs in the future. In retirement, you can use your HSA for qualified medical expenses, including certain Medicare premiums and prescription drug coverage.

Don’t Wait: Start Today

For Millennials who say that saving for retirement and health care costs are top concerns, it’s not always easy to balance plans for your future with your wants and needs today. It becomes even harder when confronting the complex challenges created by the coronavirus pandemic. Developing a financial plan and an investing strategy on your own is also a challenge, especially during these trying financial times.

Life is complex and so are the markets. So, partner with a financial adviser who can put your best interest first.

Don’t wait, start early, make savings a priority, and a little can go a long way, with time and tax deferral on your side.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Craig Hawley
Head of Nationwide's Annuity Distribution, Nationwide

Craig Hawley is a seasoned executive with more than 20 years in the financial services industry. As Head of Nationwide's Annuity Distribution, Mr. Hawley has helped build the company into a recognized innovator of financial products and services for RIAs, fee-based advisers and the clients they serve. Previously, Mr. Hawley served more than a decade as General Counsel and Secretary at Jefferson National. Mr. Hawley holds a J.D. and B.S. in Business Management from The University of Louisville.