Growing up is hard to do. First, I learned that my future shopping experiences will be a new kind of stressful when (if) I have kids (see previous blog), and now my research drops another bomb on me. It has been recommended that my generation, Gen Y, save at least $2 million dollars to retire, if we even get to retire.
“For a Generation Y person who thinks she wants to retire at around age 70 who is going to have slightly above-average annual expenses, $2 million is probably the right number,” says Michael Farr, the president of the Washington, D.C., investment firm Farr, Miller & Washington and the author of “A Million Is Not Enough: How to Retire With the Money You’ll Need.” However, Farr also warns, “Most people who have high incomes and the ability to set aside $2 million will likely have more-expensive lifestyles.”
It’s not just one person who shares this advice for Gen Y. A survey of 226 registered investment advisers also agreed with Farr. Seventy-seven percent of the advisors suggested the $2 million goal and 68% suggested that Generation X also aim for the same mark.
So, where to start? Well, to reach $2 million by retirement, a 25-year- old will need to save $7,405 every year, or $142 a week, for 40 years assuming an 8% annual return. Woof. Good thing I’m only 23!
It’s questionable whether Gen Y will even be able to retire, ever. Social Security benefits are being pushed back to older and older ages and not all companies have 401K programs to help the saving process. And with the average life expectancy age lengthening, we could be working into our mid-70s, or until we bite the dust.
What can Gen Y and X do to help with the saving process? And how can banks encourage, make recommendations and give advice to their young customers? Here are a few tips for young adults.
1. Set a worthy goal. Know what you want to be able to do in retirement, but what’s realistic with your current lifestyle.
2. Take advantage of employer help. A 401K or form of retirement plan will cut back how much you need to save.
3. Control costs. Minimize investment fees and expenses.
4. Get a Roth IRA or 401k.
5. Maximize Social Security. Make sure you have at least 35 years of earnings before you sign up for payments and carefully consider the age at which you decide to claim benefits.
6. Don’t plan on retiring at 65. Men born in 1980 can plan for at least a 19.3-year retirement, and women should prepare for 21.2 years.