According to a new survey, 8 in 10 millennial investors ages 30 to 45 say they want to retire early in their mid-50s, but only 35% have high confidence that it will be possible. The primary obstacle is that the majority of millennials have less than $100,000 in investment accounts, creating a significant gap between their aspirations and financial reality. As Joe Sinha, chief marketing officer at Parnassus Investments, explains, "To retire early, you need to invest, but this generation is somewhat delayed. They're delayed in getting married, they're delayed in paying off their college loans, they're delayed in investing."
The survey reveals that two-thirds of millennials say they taught themselves how to invest, while only about a third use a financial adviser. This self-reliant approach has created challenges, as Sinha notes that "you waited a long time to invest and want to retire early, but your portfolio doesn't really match that in terms of achieving that goal." Millennials are especially risk-averse, with many relying on themselves to figure out investment strategies to reach early retirement. The distrust of markets compounds these challenges, making it difficult for this generation to build the wealth necessary for early retirement.
Millennials face unique challenges that have delayed their financial progress. Many started their careers during the Great Recession of 2008, which pummelled the job market and pushed retirement savings out of reach. At the same time, cost-of-living expenses rose, making it even more difficult to save for the future. These factors have created a perfect storm that has delayed millennials in getting married, paying off college loans, and starting to invest. The combination of market headwinds and rising expenses has created a significant barrier to early retirement planning.
According to financial experts, millennials should aim to have 10 times their preretirement income saved by age 67. For someone with a $100,000 salary, this means having $1 million saved by retirement. The breakdown shows that by age 30, you should have the equivalent of one year's salary saved, by age 40, three times your income, by age 50, six times your income, and by age 60, eight times your income. The book by Erin Lowry emphasizes the importance of saving money even when in debt, advocating for a pay yourself first approach that prioritizes savings before other expenses.
Despite the challenges, most millennials are mid-career with ample runway to save and invest effectively. The key is getting comfortable investing, setting aside 15% or more of pretax income each year, and riding out inevitable market swings. As Sinha advises, "All is not lost. Most millennials are mid-career with ample runway to save and invest with some moxy." The book by Broke Millennial provides practical strategies including budgeting methods like the cash diet method and percentage-based spending framework that allocate 50% to fixed costs, 20% to financial goals, and 30% to wants. These systematic approaches can help millennials overcome their delayed start and achieve their early retirement dreams.
