Millennials already know on a gut level that they need to start saving for retirement. The tricky part is motivating them to actually sacrifice a portion of their first paycheck—for the sake of their 40-years-in-the-future selves.
So, we asked each of our experts what specific advice they would give to someone just starting out in her career.
Saving doesn’t have to be painful—it can be an outright pleasure. When you’re first starting out, retirement is the last thing on your mind. Actually, it’s so many decades into the future that putting money aside for it now hardly seems consequential. People often talk about saving in terms of delayed gratification—but what about the immediate gratification of seeing your account grow? Start keeping track of your assets, using an app that shows you the real-time value of all your accounts in one view. Sure, spending is fun, but watching your net worth potentially get larger can be enjoyable, too. Please keep in mind that it is also possible to lose money when investing.
Get in the habit from day one. Enroll in your 401(k) or 403(b) during your orientation—before you know what your take-home pay is. That way, you won’t miss the money being channeled from your salary to your retirement plan. Let’s face it, your take-home pay will have other pressing claims on it: paying off student loans, rent, maintaining a certain lifestyle. And remember, $100 pretax would only be worth around $80 in your pay check, depending on your tax bracket. Millennials don’t expect to be in the same job for life, and sometimes rationalize that there’s no point participating in their work 401(k) because they won’t be there for very long. But the funds you contribute remain yours, however many jobs you have. Most importantly, you shouldn’t touch that money when you leave, even though cashing it out can be enticing, especially if the balance isn’t very much. Instead, you can roll it over, along with all future 401(k)s, to the same IRA.1
Save 10% of your salary—or even just $10 per month—regardless of how much you’re making. The key thing is setting up an account and creating the saving habit early on. That’s easier for some than others. I think it’s really important to know your personality type: Are you a pleasure delayer or do you need to work extra hard to defer gratification? The less conscientious you are, the more you need outside help to get on track, because you don’t have the self-motivation and discipline of the natural saver.
Social Security may not be there for you, but you can do something about that. Young people know they have to put money into a 401(k) for their own future benefit, but how do you transform that abstract understanding into positive action? The future of Social Security isn’t clear, and the 401(k) and 403(b) do not offer lifetime income, like old-school pensions. Up until the 1980s, defined benefit plans were the norm, and workers didn’t even need to think about generating a lifetime income stream for retirement. That’s why young people need to get into the mindset of building a nest egg. And to do so, they need to be aggressive investors, early on. It is important to understand that there is inherent risk in investing in securities products, which generally increases with more aggressive portfolios.
Start saving right away, even if it’s only $20 a week (which alone would grow to $330,000 by the time a 22-year-old reached the retirement age of 67, assuming a 7% rate of return2). When I was that age, I didn’t really understand the power of compound interest. So to help newbies just starting out, I give examples like this. To be eligible for your employer match, you might have to be employed for 6 months or a year, so find out when that kicks in and mark the date in your calendar. As soon as you can get your hands on that “free” money, take full advantage of it.
Your retirement will look a lot different from your parents’. Defined benefit plans, including pensions, are becoming less common. Pay yourself first. You won’t miss what doesn’t appear in your paycheck. Aim for 10% of your pretax salary, and if you can’t manage that right away, at least defer enough of your salary to get you the employer match. Money can be tight in your early 20s, but you need to get into the percentage mindset. Plan to increase that percentage over time—certainly every time you get a raise.
Teachers Insurance and Annuity Association of America has sponsored Ask the Expert posts for informational purposes only. Many of the experts are unaffiliated with Teachers Insurance and Annuity Association of America, College Retirement Equities Fund, and their affiliates and subsidiaries (collectively TIAA), and TIAA makes no representations regarding the accuracy or completeness of any information on the posts or otherwise made available by the experts. Statements of external featured experts are solely their own and are not endorsed or recommended by TIAA.
TIAA is not responsible for the content or privacy policies of third-party sites to which you may link.
The TIAA group of companies does not offer tax or legal advice. You should consult an independent tax or legal advisor for advice based on your own particular circumstances.
This material is for informational or educational purposes only and does not constitute investment advice under ERISA. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
Experts may not have medical or scientific training. Any information related to physical or emotional health is not intended to be used in place of a consultation with a physician.
TIAA is not responsible for the statements of community members. We may link to posts made by community members only to direct you to topics that may be of interest to you. This does not mean that we agree with the opinions of these community members. Their statements are solely their own and are not endorsed or recommended by TIAA.