Retirement Planning for Millennials Now

I know this question isn’t probably top of mind for Millennials. Do you even know what financial independence means or looks like for you? Let me give you an idea. Financial independence is the new term for retirement because for many of us, it doesn’t mean playing bridge or golfing every day in sunny Florida. We are working hard to succeed at things in life that we love and many of us don’t plan to ever stop doing what we love. But we would like the option of having to do it less.

There will come a time when you want to spend less time working and more time doing other things. That is the financial independence I am talking about. Can we reach a point in our lives when work is optional? The short answer is yes. You can achieve financial independence. However, you need to consider some things first. Let’s just look two things I get asked about a lot: Social Security and market returns. (For more, see: Retirement Planning the Millennial Way.)

Social Security

When talking about retirement or financial independence, Social Security comes up often. Most of our grandparents are already receiving it and our parents hope they will, but we are less certain. And most Millennials don’t think it will be around by the time we get older. This means that we have to plan differently than other generations for our retirement. This uncertainty puts the ownership on us to save for our own future and not just rely on the government or a hefty pension to fund our golden years. I think Social Security will be around but the way it looks is going to change in our lifetime.

The current system doesn’t seem to be sustainable for many reasons. One is that we have longer life expectancies than generations before us. It is in the hands of politicians to make changes to the system (scary, for many reasons). The changes might be that the full retirement age is pushed higher meaning we may have to reach age 70+ before we receive a benefit or maybe those with more assets will receive less Social Security than those with less. Who knows? But I do think that something will change before we reach that point in our lives. I know you are thinking, how do I plan for that giant question mark that is Social Security? The answer is that you have to look at multiple scenarios.

Look at what your retirement will look like with Social Security, maybe with 50% and then with no Social Security at all. See how those numbers affect your financial picture and how you feel about it. If you know what the outcomes may be then you can better plan for them now. And for those of you Boomers, don’t make a decision about Social Security out of fear. You have choices about when and how to take Social Security. Take advantage of the strategies that may make the most sense for your situation. (For more, see: Top 5 Most Common Personal Finance Goals for Millennials.)

Market Returns

Ah, the million dollar question: what is the market going to do? If I had that answer, I would be living the sweet life on an island in the Caribbean right now. But I am not because I can’t predict what the market will do any better than the guy in the next office. Here is what I can tell you -over the past 60 years, the average annual return of the S&P 500 adjusted for inflation is about 7%. But what does that really mean?

Well as the saying goes, past performance is no indication of future results. We have all heard this many times. It’s true. None of us know what our future holds. The best we can do is plan with the information we have. You have to decide how you feel about the market and make the best education decisions you can about how you invest your money for retirement. You aren’t alone though. You can consult with professionals who can help guide you.

Achieving Financial Independence in Retirement

Millennials, our retirement won’t look like that of our grandparents for the following reasons:

1. We won’t have the same Social Security benefits that they do. They don’t have to work once they are retired to live a comfortable lifestyle in Jimmy Buffett’s Margaritaville-themed retirement community.

2. We have student debt that is limiting our ability to save now.

3. Most of us don’t have pensions.

4. We started our careers when unemployment was high and wages stagnant making it harder to us to get our careers off the ground.

5. And we are going to live longer than generations before us (so long as we look up from our iPhones to cross the street or have spouses to tell us to watch out). For those reasons I say start now. By reading this, you get a high five. You are educating yourself about personal finance and financial independence. In addition to educating yourself, start making a plan. If we are going to overcome the odds placed against us we have to plan today. (For more from this author, see: How and Why Millennials Should Seek Career Mentors.)