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Retiring In Your 60s May Be Unattainable for Younger Generations

For the vast majority of Americans, 62 is the golden number. This is the average age of retirement for most Americans. It’s the time at which your 401(k) should bemature enough to allow you to leave the workforce and live comfortably.

In a perfect world, this would be the finish line for the workforce race. However, the road to retirement is often bumpier than expected. Rising costs and unexpected life expenses can derail even for the best retirement plans. Particularly, for those who rely on the “magic number” of 62 for their retirement dreams. For millennials, 62 is a dream that may no longer be achievable.  

Work Is The New Retirement

According the NerdWallet’s 2015 New Grad Retirement Report, when it comes to retirement 75 is the new 62 for most Americans.

There are many reason for this increase in retirement age, especially for millennials.

The first obstacle is surmounting student loan debt. For millennials, this debt averages $35,051, an increase of right around $6,000 from just three years ago. The problem with this is that the average starting salary has only raise roughly by $1,200 since 2012. A college education is more of a requirement for the current job market. The fact that tuition costs are rising more rapidly than wages or inflation spells bad news for debt. The result? Millennials have accumulated over $1.2 trillion in student loan debt.

This debt could reduce retirement savings by nearly a third, according to Nerd Wallet. This is because the average repayment plan for these loans hovers at around $4,239 annually – including interested – over ten years. This is money that could be invested in retirement. It’s money that is reducing millennial retirement funds by almost $700,000 over a 50-year period of time.

Recent grad’s early working years, money is going to divert to paying debts

Additionally, simply keeping a roof over one’s head has has become more expensive. The average national cost of rent is rapidly rising – more quickly than wages. Rent prices across the United States have risen roughly 11{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439}  since 2012.

Funds heading toward covering basic living expenses and student loans, leaves less money for investing. The outcome? More years spent in the workforce.

Another setback for retirement savings is a deep-rooted mistrust of the market and investing their hard-earned cash. Younger generations who grew up in the heart of the recession are prone to holding on to their cash. Resulting in a downturn in annual investment. This spells a tight budget in later working years to make up for the funds that aren’t currently being set toward retirement.

How To Retire Younger

So what would it take in order to retire at the golden number of 62? As it turns out, it would take a lot. For younger generations, this means investing 20{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of their income instead of the 6{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} they are currently working with.

Suggestions such as living at home for as long as possible to save money and maximizing an employer-sponsored 401(k) contribution are easy ways millenials could start saving for retirement. However, it’s not just what you save, but how you save that makes the big difference. 

For example, investing your money in a traditional brokerage account exposes you to taxes each time you sell a stock or mutual fund. You can eliminate taxes by contributing to a Roth IRA, which allows your funds to grow tax-free  and -unlike a traditional IRA – there are no requirements of a minimum distributions from age 70.5 and on.

What you choose to invest in is also a key component to maximizing your retirement fund. This may mean taking the plunge and trusting the stock market. Naturally, there will be periods of time where the market doesn’t perform as well; however, historically, long-term investors who have bet on the right companies have done well. Speaking to a financial aid adviser and doing a little outside research can help you determine which companies to trust and which to ditch.

Younger investors have a longer period of time to correct investment mistakes

So, more aggressive forms of investing might be a good idea. This way, investors have the potential to come out of the gate with a large return on their investment.

The next way investors – especially millennials and newer investors – can plan for retirement is to build a solid budget. We’ve probably beaten this topic to pieces by now, but having a good idea of where your money is going can help you understand how their expenses impact their income. We suggest developing a monthly budget by writing down the things you purchase for a few weeks. This way you can eliminate the unnecessary, such as excessive eating out. You’ll be able to save for your future and budget for the fun things you want to do, such as travel.

The next thing you should consider is using your free time as a cash cow, because it actually might be worth something. Teaching a musical instrument or a skill, freelancing, and even babysitting are all ways to boost your income and, therefore, boost your retirement savings.