Will Millennials ever be able to afford to retire? That's what Gen Yers – the other name for those born between the early 1980s and early 2000s – and financial experts are asking these days. You’d think that retirement planning would be a no-brainer for this young group, which has watched parents and grandparents struggle so much with recessions, saving money and real estate booms and busts.

However, according to surveys, it seems that Millennials still have some learning to do in preparing for retirement. (For more, see: Retirement Planning the Millennial Way.)

A Free Ride?

Part of the problem seems to be that a good percentage of Millennials – 26% total – are expecting a bit of a free ride toward retirement savings, hoping that either their lottery ticket purchases will pay off or that they’ll be gifted with money to use toward retirement savings. With this unrealistic retirement plan, a good quarter of Millennials will likely struggle financially during retirement years.

Another part of the concern about Millennials and their retirement lies in the fact that a full 70% of the folks surveyed believe they’ll be able to survive during retirement on $36,000 a year. The problem with this perception is that in 2013, the average yearly expenses for those ages 65 to 74 were more than $46,000 a year, according to the Bureau of Labor Statistics.

“With the cost of goods, food and housing at such inflated prices now, Millennials will not be able to live off of $36,000 a year in retirement. Based on an inflation rate of 3%, the value of $36,000 today will be reduced to $14,831.52 in 30 years,” says Carlos Dias Jr., wealth manager, Excel Tax & Wealth Group, Lake Mary, Fla. The disparity in perceived retirement funding needs could easily lead to financial disaster for retirement-age Millennials.

Fear of the Market

A third factor that could leave Millennials vastly underprepared for retirement is their fear of investing in the stock market. A Bankrate survey found that only 26% of people under 30 own stocks. The Great Recession and the market losses Millennials lived through and watched those close to them experience has left them fearful about investing in the stock market. While this is an understandable fear, the stock market, over the long haul, has produced return rates hovering in the 11% range, which can bring hundreds of thousands in compound interest rate return dollars for the patient investor who starts investing early. (For more, see: Investing Strategies for the Millennial Generation.)

So what can Millennials do to change their financial future and create a more secure retirement path? Here are some concrete steps to take that will help ensure that they don’t find themselves dealing with a rude awakening as they get older.

  • Meet with a trusted financial planner. Ask financially savvy friends and family members for recommendations and schedule a meeting.
  • Start contributing to your employer’s 401(k) plan. Most employers have a match program these days. Don’t give up that free money. 
  • Consider opening a Roth IRA. Roth IRA contributions aren’t deductible on your taxes, but earnings on one are never taxed. With time on their side, Millennials could be served well with one. “I always recommend that you fund your Roth each year even if your budget is tight. If you end up needing the funds down the road, you can take those funds out, no tax – no penalty. However, if you don’t make a contribution for a given year, you can never go back and make those contributions up,” says John P. Daly, CFP®, president, Daly Investment Management, Mount Prospect, Ill.
  • Dump debt fast. The sooner Millennials learn to live without debt, the better. A life without debt to pay back means more free cash to save and invest for retirement and for other needs. “You shouldn’t neglect saving for retirement while you are taking care of your debt. A priority should be made to do both at the same time, even if it is just a little bit,” says Mark Hebner, founder and president of Index Fund Advisors, Inc., in Irvine, Calif. and author of “Index Funds: The 12-Step Recovery Program for Active Investors.”
  • Create a diversified retirement portfolio. Creating a diversified retirement portfolio and the balance it provides against volatility will help quell millennial fears about investing in the stock market.
  • Choose to get educated on retirement investing strategies – and on how to practice good saving and investing practices.
  • Set up a budget. “Truly understanding your personal expenses and planning for funding of future goals can be a very effective first step to getting on the path to strengthening your finances,” says Alexander Rupert, CFP®, assistant portfolio manager, Laurel Tree Advisors, Cleveland, Ohio.

The Bottom Line

The outlook for Millennials during retirement may appear grim now, but it doesn’t have to stay that way. With the proper knowledge, Millennials still have plenty of years to grow themselves a plush retirement savings nest egg. (For more, see: This Is the Top Fear of Gen X, Millennial Savers.)

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