How To Start Planning Your Retirement While You’re Still In Your Twenties

At current rates, millennials may end up working some 13 years longer than their parents. Here’s how to buck that trend.

How To Start Planning Your Retirement While You’re Still In Your Twenties
[Photo: Olu Eletu via Shutterstock]

Pick your careers wisely, new grads. You may be working for more than a half-century. A recent analysis we conducted here at NerdWallet found that, on average, the class of 2015 won’t be able to retire until age 75. According to the Center for Retirement Research, the latest trends in Social Security claims imply that the average retirement age today is 62–which means that at the current rate, millennials may end up working some 13 years longer than their parents.


To be fair, all those figures are averages and forecast that assume present conditions stay more or less the same over the next several decades. Of course, that’s all unlikely, but it’s equally an argument for millennials to do more right now in order to be able to retire earlier. Here’s how.

1. Supplement Your Income

Research shows that millennials are passion-driven workers. By some estimates, around half say they would take a pay cut in order to work for a company that aligns with their interests.

While pursuing a passion even though it pays less is admirable, it isn’t going to help you retire any earlier. On the other hand, it might be easier to work longer–as long as you’re healthy–if you’re doing something you love. But the fact remains that it’s harder to save on a limited income.


So what should you do? For one thing, that willingness to swap a high salary for a sense of purpose may diminish over time, as millennials gain more experience in the workforce and adjust their priorities. Or, viewed less cynically, that zeal for pursuing their passions could give millennials more flexibility than prior generations–including the leeway to pursue money-making side projects they care about.

Don’t automatically give up on your dreams and change careers. Add a side hustle instead. Find freelance projects through Upwork. Teach a paid course on Udemy. Become a ride-share driver. Dog-sit through DogVacay. Become an Airbnb host, or start selling other goods and services on the array of social platforms designed for every conceivable niche.

Chances are you already know you should contribute up to the match if your company offers a 401(k), but having a side gig can help you expand the ways you budget and save. Use the side money you earn to supplement your lifestyle, or put anything extra into an IRA. It can add up. If you can earn and invest an additional $300 a month over five years, for instance, you’ll have set aside $21,000 (assuming a 7% return) over just that period. Don’t touch that money for another 30 years, and it’ll become $160,000!

2. Be Optimistic, Not Complacent

Being happy is good for your career. Likewise, being optimistic can motivate you to save. If you think the future is rosy, you’re more likely to want to fund it. But being too optimistic can harm your career and your saving efforts alike. If you’re overly satisfied, you won’t strive for more–more responsibility, more money. If you’re overly confident, chances are you’ll assume the future will take care of itself.


There’s already some evidence to suggest that this is happening. A Pew survey last year found that 53% of millennials expect to “have enough money to lead the lives they want.” Trust in the future is great, but it isn’t cash. That money won’t be there if you don’t put it away yourself.

3. Choose Jobs With Room To Grow

Before accepting a position, says Lisa Gates, a negotiation consultant and executive coach, you should ask: “What is the potential for growth? What is the path to promotion, and if you were to give me career advice, how would I get there?”

New grads tend to hesitate here–many are just relieved to have a job when so many of their peers are unemployed or underemployed. But a good employer should be able to outline a visible, achievable path up through the ranks. You can do further due diligence on LinkedIn and Glassdoor; profiles of current and past employees will show you if and how they’ve advanced, and what they liked and disliked about their experience.

After all, it’s not just about climbing the ladder; it’s also about making sure you don’t get stuck in one position for years, with your salary and quality of life both getting stale.

4. Invest Aggressively

Millennials are hesitant to invest, thanks in no small part to the mountains of student loan debt many of them still face. But while paying down debt is still a huge priority in the early years of your career, so is planning for your retirement. In fact, you can do so more aggressively than traditional advice may suggest–and you might even accumulate more despite saving less.


The boom of robo-advisers is pushing this concept forward. Betterment makes a strong case for investing short-term savings. Blooom, which manages 401(k)s, heavily favors equities–in many cases, with an allocation of 100%–until 20 years before retirement. (A spokesman there recently told NerdWallet that the company believes “every other managed solution out there is designed as a ‘don’t-sue-me strategy’ for the adviser and plan sponsor.”)

At all events, do everything you can to dial down your risk as you get closer to retirement, but until then, invest as aggressively as possible.

5. Know That It’s Saving, Not Getting, That Matters Most

We’re all prone to “lifestyle creep,” the strong desire to bump up spending as our incomes rise. Suddenly, the house is too small, the car too shabby, the couch too saggy.

But once you’ve hit a certain level of financial comfort, having more probably won’t make you happier. Saving more, on the other hand, can. And avoiding lifestyle creep is perhaps the single best way to do that. If you increase your retirement savings contributions (rather than your spending) in proportion with every raise you get, you’ll build wealth without even trying.


The best part: The biggest wealth increases actually come in our twenties and thirties, according to two recent pieces of research, one from the Bureau of Labor Statistics and the other from the Federal Reserve Bank of New York. Those just happen to be the most important years to save, so your money has ample time to grow. And in light of more discouraging trends, that’s one rare, welcome instance when the stars align.

Kyle Ramsay, CFA, leads the investing category at NerdWallet, helping people invest more effectively and confidently. Before joining NerdWallet, Kyle spent three years at LinkedIn in business and product management roles.