The Millennial Retirement Crisis: Understanding the Urgency for Retirement Planning (2024)

With 20-30 years before retirement age, millennials may not be thinking about retirement just yet, but it's a looming crisis that we all have to think about sooner or later - better sooner. I know, planning for retirement might not be the most thrilling topic at your dinner parties, but it's important.

Nearly 2/3rds of millennials have zero ($0) saved for retirement, and that's not a surprise given so many factors - including student loans, credit card debt, economic uncertainties, and poor financial literacy. And those who do have an average of $49,000 saved up for retirement - not enough, if you ask me.

Why Start Planning for Retirement Early?

Starting early is your biggest advantage. The earlier you start saving, the more time your money has to grow. Thanks to compound interest, even small amounts saved now can grow into significant sums by the time you retire. It’s like planting a tree; the sooner you do it, the bigger it’ll be when you need its shade.

How Much Should You Save?

A common question is, “How much do I need to save?” That depends on your lifestyle and retirement goals. A good rule of thumb is to aim for saving at least 15% of your annual income. Or, another way of taking a look at this is if you plan on living the same lifestyle you have today during retirement, then multiply your annual income by 176% (or 1.76) to take into account inflation for the next 20 years. Once you have that number, calculate your savings needs using the 4% Rule of Retirement Withdrawal Strategy. And that's the amount you need to have saved by the age of 65 in order for you to live off of the interest earned from your savings account.

For example, if you're currently earning $150,000 per year today, you would need an annual income of $264,000 during your retirement years. You then divide that by 4%, which gets you to $6,600,000.

Now, I'm not saying that you could only take 4% from your savings account in the future, that's just a conservative number. If your retirement account is earning an average of 7-10%, then you can withdraw somewhere around that.

Where Should You Put Your Retirement Savings?

Now, there are plenty of options, and the last two are my favorites:

• 401(k) plans, often offered by employers, allow you to save money before taxes are taken out. This is a great option if your employer match. I'd say contribute up to the max, then consider putting the rest into other options.
• IRAs (Individual Retirement Accounts) are another great option, with tax advantages that help your savings grow. However, know that there are contribution limitations which are $7,000 for those under age 50, and $8,000 for those age 50 or older.
• Fixed Index Annuities (FIAs) are retirement plans you can roll over your old 401(k)s into. So if you've recently switched jobs, consider this option. The beauty about FIAs is that they are indexed, which means that your money has the upside potential of the market growth while having the protection of a guaranteed floor, typically 0%, which means your principal won't lose a single dime in case the market goes down.
• Life Insurance Retirement Plans (LIRPs) are a less talked-about but incredibly useful tool. They offer the benefit of life insurance combined with the growth potential of a retirement account. Your contributions grow tax-deferred, and you can often access your money tax-free during retirement or even sooner - there's no penalties for accessing your money before the age of 59 1/2 like other retirement plans. The growth and guarantees of your retirement plan will also depend on the policy type and structure. More on this in future articles.

The Benefit of Life Insurance Retirement Plans

Life Insurance Retirement Plans (LIRPs) are particularly appealing if you want to combine the security of life insurance with the growth of a retirement plan. Here’s why they might be right for you:

• Financial Security: Besides helping your money grow, LIRPs provide a death benefit to your loved ones.
• Tax Advantages: With LIRPs, you can access your money tax-free under certain conditions. That’s a big plus over traditional retirement plans where withdrawals are taxed.
• Flexibility: You can often access funds in your LIRP without the penalties that come with early withdrawals from other retirement accounts.
• Guaranteed Safety: LIRPs often have guarantee a minimum interest rate on the cash value, although this depends on the specifics of the policy and the issuing company. This can provide a safeguard against negative returns in a volatile market.

Start Taking Action

Knowing is only half the battle. The next step is to start acting. Consider how much you can realistically save each month. Look into the retirement savings options available to you and think about how they fit into your financial plan. If you’re not sure where to begin, talking to a financial advisor can be a great first step.

Remember, the path to a comfortable retirement is a marathon, not a sprint. Starting now, even with small steps, sets you up for a more secure future. Take control of your retirement planning today; your future self will thank you.

If you're curious how your money could grow in either a Fixed Index Annuity (FIA) or a Life Insurance Retirement Plan (LIRP), my team and I are offering a free consultation with a bonus illustration. Click the button below to schedule yours!