Approaching any starting line can be daunting, and adulthood can be full of new beginnings. Finding a job, buying a car, marriage, buying a first house, kids, buying the forever house, college, finding a new job, retirement. Then of course, life happens along the way. Taking it day by day can be tedious, whereas eying up retirement for a millennial can be like looking through a telescope. Let’s break it down decade by decade.
The Roaring 20s
Becoming a world-class saver should be a top goal for any young professional. The best way to prepare for a marathon is to start running. Accumulating wealth is no different, start saving. A good rule of thumb is to save 20% of your gross annual income. This suggestion often triggers the question, “Should that 20% be pre-tax or post-tax?” Feel free to count it all, but it should be a mix as different accounts have different benefits. If you need a benchmark to compete against, try and beat $9,200 annually, that’s 20% of $46,000, the median income for a college grad in their 20’s.
Next, focus on protecting your income. After all, this is the foundation of all future investing and financial planning. Statistics show that 25% of 20-year-olds will become disabled at some point in their working life. An individually owned True Own Occupation disability policy is the best way towards insuring your skillset and paycheck from the not so uncommon, unexpected event.
Start small and grow big. Consider contributing just 1% of income to a workplace retirement plan and set up an auto-increase of 1% every year moving forward. If your employer offers a match, contributing up to the match should be a priority. If you think taxes are going to go up and/or that you’ll be in a higher tax bracket later in life, the tax-free growth afforded by a Roth option in your retirement plan should be considered.
The Groovy 30s
You’re settling into your groove. Work, relationships, living situation, it’s all coming together. The median income is $65,700, so savings rate should now be at least $13,140 annually. Credit score starts to play a huge role as some of the bigger purchases in life occur (i.e., home). The average credit score for millennials in 2020 was 679. Build a strong credit history by regularly using and paying off credit cards on time, every time. All consumer debt beyond the mortgage should be kept to a minimum.
As obligations and the realities of life enter the picture, such as a mortgage and raising a family, consider locking in life insurance while young and healthy. Most industry experts consider “Human Life Value” to be 20x income in your 30’s. That’s roughly a $1 million policy for the average millennial. Convertible term life insurance can be a cost-efficient way of protecting your needs while leaving the door open for converting to permanent, cash-value bearing coverage later in life.
The Climbing 40s
The story of your life is coming into focus. The savings goal never changes and should now be at or above $14,860 annually (20% of the median income of $74,300). As you begin to enjoy the finer things in life, be smart about those vacations. The average cost of a Disney vacation for a family of four is $4,641. Make sure you can afford the bill without cutting into your six months of expenses, “Rainy Day Fund”. Or, if it’s on the credit card, pay it off as soon as possible. Also beware of all the tempting time share offers, this can lead to a lifetime of payments and maintenance fees for family vacations that might not be happening in 20 years.
As the toddlers start to pick up books, begin thinking about college. If you’re afraid of the next generation continuing the student loan crisis, saving now in a 529 plan or other vehicle can help offset future expenses. The average cost at a four-year private university is $41,400, and the cost of higher education has routinely outpaced the rate of inflation.
The Peaking 50s
Annual savings should be at least $15,000 in this highest earning decade. The finish line, retirement, may now be in sight. As defined benefit pensions wither away, many financial planners recommend a goal of retiring with 25x your annual expenses in your portfolio. According to the Bureau of Labor Statistic, the average retiree spends about $4,000 monthly. That equates to a $1.2 million retirement portfolio. At face value, this can sound intimidating, but for millennials still in their 20’s, don’t forget the power of compounding. Starting from scratch at age 22, investing $4,600 annually at a 7% rate of return until age 65 will create a portfolio worth over $1.2 million.
This decade is also where the infamous “sandwich” can occur. 24% of parents are helping their adult children pay rent, while 17% of people become responsible for caring for an elderly parent. If retirement is in jeopardy of taking a backseat to everyone else, consider adjusting goals and weaning the kids off their allowance.
As major transitions occur from kids to grandparents, and that feeling of invincibility begins to subside, make sure a will and properly drafted estate plan are in place. These important documents can serve as a playbook for all your finances if the unexpected should occur.
The Swinging 60s
Finish strong with the same $15,000 savings rate as the golden years are in reach. Consider delaying social security if you can afford to, especially if longevity is in your genes. The annual income benefit is 32% higher at age 70 than if you had collected at age 67. As you segue into retirement, everyday might feel like Saturday, and those expenses could be higher than originally anticipated. The cost of feeding two people at $5 per meal for 20 years is over $219,000 by itself. The average healthcare expenses in retirement for a couple exceed $300,000. You’ve been saving for a rainy day, and now it is beginning to rain, but worry not, as that’s what all the planning was for.
The Leisurely 70s
Retirement has been achieved by most at this age bracket. Enjoy those 18 years of peace and quiet, the average length of retirement in America. You’ve heard for decades the connection between health and wealth. Now, follow through by staying active. There is a 40% increased chance of clinical depression after retirement.
Many millennials are fueling the new FIRE movement, Financial Independence Retire Early, by hoping to retire by age 40. While other folks hope to never have to retire. These ambitions obviously require drastically different incomes and saving rates to be possible. Either way, the outline above provides a frame of reference for what life might look like as time goes on.
Every situation is unique just like every person chases his or her own goals. Consider teaming up with a certified financial planner to help coach you through the intricacies of your ever-changing plans.
Bryan M. Kuderna, CFP®, MSFS, RICP®, LUTCF is the host of The Kuderna Podcast and founder of Kuderna Financial Team, a NJ-based financial services firm. He is also the author of Anoroc and Millennial Millionaire.
Bryan M. Kuderna does not provide tax or legal advice. Individuals should consult their tax or legal advisors to discuss their own personal situation.
 Education Pays, College Board- 2019
 US Social Security Administration Fact Sheet- June 2020
 “What is the average cost of vacation”, Spendmenot- 2021
 US News and World Reports- 2020
 “Aging parents helping adult children financially: unhealthy results”, Forbes- 2018
 Center for Retirement Research at Boston College- 2017
 “How to plan for rising healthcare costs.”, Fidelity- 2021
 Institute of Economic Affairs- 2013
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