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As millennials enter their 30s and 40s, retirement suddenly doesn’t seem as far off as it once did. In fact, many millennials hope to retire by age 59, according to one recent survey — six years before the traditional retirement age of 65.
The average millennial believes they’ll need $1.65 million to be comfortable in retirement, according to a 2024 study by Northwestern Mutual. But they’ve got a long way to go to reach that number: Millennials have saved just $62,600 on average, the research found. That means they’ll need to save at least $1.59 million between now and the day they retire to reach their goal.
No matter what your specific retirement goal is, ramping up millennial retirement savings now can pay off. The sooner an individual starts saving for retirement, the more time their money potentially has to grow. Read on for ways to kickstart your retirement savings — and some common mistakes to avoid — in our millennial’s guide to retirement planning.
Key Points
- Saving early and consistently for retirement could help millennials take advantage of compounding returns and meet long-term financial goals.
- Creating a budget helps manage expenses and allocate funds for retirement.
- Retirement savings account options include a workplace 401(k), an IRA, or a brokerage account.
- Understanding risk tolerance can help investors make informed investment decisions.
- Diversifying investments is a way to spread money out across a range of assets to reduce the risk of losses.
Why Retirement Planning Matters for Millennials
Since young adulthood, millennials have faced a series of financial challenges. They graduated college with an average of $40,438 in student loan debt, according to the Education Data Initiative. They often struggled to find jobs during the Great Recession, and when they did land a position, their wages typically stagnated. Then, during their peak earning years, the Covid pandemic hit, and a large chunk of the economy slowed or shut down.
In addition, home prices have skyrocketed since 2020, putting homeownership out of reach for many millennials. Rents have also risen sharply, taking a chunk of their paychecks. Add to that increases in the cost of living across the board and rising credit card debt, and it’s no wonder millennials find themselves falling behind.
Faced with so many financial pressures, millennials may feel that saving for retirement is less of a priority because it’s far in the future. But that’s a misconception. In order to amass enough retirement savings, an individual generally needs to routinely put money away for at least 25 years, and ideally, even longer. Starting now on your millennial retirement savings plan could make all the difference.
💡 Quick Tip: How much does it cost to set up an IRA? Often there are no fees to open an IRA online, but you typically pay investment costs for the securities in your portfolio.
Setting Your Retirement Goals: What Does Your Future Look Like?
According to the 2024 SoFi Retirement Survey, 75% of Americans don’t know how much they’ll need to retire. Before you can understand how much to save for your post-work years, you need to figure out what you’d like your retirement to look like. Do you hope to travel? Would you like to relocate to another part of the country — or move to a different country altogether? Or are you planning to downsize and move to a smaller home in the same general area?
Envisioning the lifestyle you hope to have in retirement can help you calculate what your retirement costs might be.
How to Determine How Much You Need to Retire
There isn’t one millennial retirement savings amount that will work for everyone. How much you need to retire depends on your unique situation. However, there are several rules of thumb you may want to consider as ballpark estimates.
- The 4% rule: The 4% rule suggests that retirees can safely withdraw 4% of their savings in the first year of retirement, and then adjust that amount for inflation in subsequent years, to help ensure their savings will last for 30 years. You can also use this rule to back out how much you’ll need to set aside for retirement. To do this, you estimate what your annual retirement costs will be and divide that number by 4%. For example, if you believe your annual retirement expenses will be $60,000, dividing that number by 0.04 would result in $1.5 million. That would be your retirement savings goal.
- The 80% rule: This rule says retirees should aim to replace 80% of their pre-retirement income to maintain a similar standard of living. So if you’re earning $120,000, you would aim to have enough retirement income, from savings and other sources like Social Security, to generate $96,000 per year.
- Age-based savings rule: Another guideline offers rough targets for retirement savings based on your age as follows:
| By age … | You should have saved … |
|---|---|
| 30 | 1x your salary |
| 40 | 3x your salary |
| 50 | 6x your salary |
| 60 | 8x your salary |
Remember, each of these three rules offers only rough amounts or guidelines for the amount you’ll need to save. But they can give you a starting point for estimating your retirement savings.
Average Retirement Age for Millennials
The average retirement age in the U.S. is 62, according to a 2024 study by MassMutual. As noted earlier, many millennials hope to retire by age 59. That means the oldest millennials, who are 44 in 2025, have approximately 15 to 18 years to save for retirement.
Understanding Your Retirement Savings Options
Whether you’re just starting to save for retirement as a millennial, or you’ve already started saving but want to kick your efforts up a notch, there are a number of different types of retirement plans you can consider.
Employer-Sponsored Plans (401(k), 403(b))
You can sign up for an employer-sponsored retirement plan if your workplace offers one. This might be a 401(k) plan if your company is for-profit, or a 403(b) if your employer is a nonprofit.
With employer-sponsored plans, you decide how much you want to contribute, and your contributions are typically automatically deducted from your paycheck. This can help you save without even thinking about it. Individuals under age 50 can contribute up to $23,500 in a 401(k) in 2025.
Additionally, your employer may offer a 401(k) match, which means they match your contributions up to a certain percentage. That’s basically “free money,” so if your workplace offers 401(k) matching, it’s a good idea to participate.
You may be able to direct how you want to invest the money you contribute to your 401(k) by choosing from a number of options offered by the plan, which may include stocks, bonds, and mutual funds, and exchange-traded funds (ETFs).
For those who are self-employed, there are solo 401(k) plans to help them save for retirement. The way these plans work is similar to a traditional 401(k), but solo 401(k)s are specifically for individuals who run a business by themselves or only employ their spouse.
Nonprofits may offer their employers a 403(b) plan, which is also similar to a 401(k). As with a 401(k), your employer may or may not offer matching contributions. However, your investment options with a 403(b) may be more limited than the investment options in a 401(k).
Individual Retirement Accounts (IRAs)
Another option for saving for retirement is an individual retirement account, or IRA. Freelancers or contract workers may want to consider opening an IRA, and so might millennials who don’t have a workplace retirement plan, or who have maxed out their employer-sponsored plan and want to save even more. (Keep in mind: If you already have a 401(k), you may or may not be eligible for tax-advantaged contributions to an IRA in any given tax year, depending on your income.)
There are different types of IRAs, but two of the most common are Roth and traditional IRAs. Each has the same annual contribution limits, which is $7,000 in 2025 for those under age 50.
Both traditional IRAs and Roth IRAs are tax-advantaged accounts, but they work differently. With a traditional IRA, you make pre-tax contributions. You can deduct the contributions in the year you make them, as long as you meet certain conditions. When you withdraw your savings from a traditional IRA in retirement, you pay taxes on the withdrawals.
With a Roth IRA, your contributions are made with after-tax dollars. You can’t deduct your contributions, but your potential earnings grow tax-free in the account, and your qualified withdrawals in retirement are tax-free. Roth IRAs do have income limits ($150,000 for those who are single in 2025 and $236,000 for those who are filing jointly) to make a full contribution.
There are specific withdrawal rules for traditional and Roth IRAs. For example, withdrawals from a traditional IRA before age 59½ typically incur income taxes and a 10% penalty. Withdrawals of Roth IRA contributions can be made anytime and they are tax- and penalty- free. However, any earnings withdrawn before age 59 ½ may be subject to income taxes and a 10% penalty.
Brokerage Accounts for Retirement Savings
There is no single best way to save for retirement; sometimes an approach that includes different kinds of retirement savings accounts may be worth exploring. For example, millennials who have an IRA or a 401(k) may also want to consider opening an investment account, such as a taxable brokerage account, to invest in the market.
Once you open a brokerage account and deposit money into it, you can start investing. You might choose to buy stocks, mutual funds, ETFs, or other securities, for instance. There are no contribution limits with a brokerage account, and you have a wide range of investment options.
Just be aware that because brokerage accounts are taxable, selling investments can result in gains or losses, which generally have tax implications. Interest and dividends earned may also be taxable. You can consult with a tax professional to learn more.
💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.
Key Steps to Start Your Retirement Plan
One of the most important moves you can make as an investor is getting started. Here’s how to put your millennial retirement savings plan into action to help secure your financial future.
Create a Budget and Track Your Spending
Making a budget, and then sticking to it, can help you reduce expenses and free up money you can put toward retirement.
To make a monthly budget, gather all your bills (including mortgage or rent, utilities, credit card bills, student loan payments, and car payments) so that you can add up your typical monthly expenses. Next, calculate your average monthly income. Besides your regular job, include any side gigs you may have.
Once you have those figures and you can clearly see what you’re paying out and taking in, you can create a monthly budget. Look for any expenses you may be able to eliminate or reduce, such as streaming services, gym memberships, or eating out at restaurants.
Start Saving Early and Consistently
The sooner you start saving for retirement, the more time your money potentially has to grow. One reason for this is the power of compounding returns. This refers to the process where investment earnings are reinvested to generate further earnings. This creates a snowball effect, where returns are earned not only on the initial investment (principal) but also on the accumulated returns from previous periods, leading to exponential growth over time.
This is one key reason people are encouraged to invest as young adults, such as investing in your 20s. The longer money is invested, the more it may compound.
Understand Your Risk Tolerance
Investing your money inherently involves risk. That means you’ll need to determine what your risk tolerance is.
Risk tolerance is the amount of risk you are willing to assume to achieve your financial goals. Typically there are three main categories of risk tolerance: conservative, moderate, and aggressive.
To help figure out what your tolerance for risk is, consider:
- How much money you have to invest and whether you expect your salary to increase over the coming years. If you do expect your income to go up, your risk tolerance may be higher since it might be easier to recover from any losses.
- What your expenses are now and what they’re likely to be in retirement. If you are looking at higher expenses in retirement, your risk tolerance might be lower, and vice versa.
- How you feel about the stock market. If volatility makes you nervous you may want to assume lower investment risk, for example.
- When you want to retire. If you hope to retire early, you may want to be more conservative with your investment strategy.
Diversify Your Investments
When investing, it’s important not to limit your portfolio or put all your investments into one basket. If you do, it could make you vulnerable to losses. For instance, if you invest in stocks that are all in the same area or sector — energy, say — and a negative event causes those stocks to drop, the value of your entire portfolio could plummet as a result.
Diversifying your portfolio means investing in different kinds of asset classes, such as stocks, bonds, mutual funds, and money market funds, for instance. From there, you can invest in different types of assets in each asset class. So you might choose medium- and large-cap stocks and a variety of different kinds of bonds. That way, if one sector or type or investment drops in value, the other investments you have may hold steady or even go up to help balance things out.
While diversification is not a way to avoid risk, it does spread your money out across a range of assets in a way that could be beneficial.
Consider Professional Financial Planning
If you don’t feel confident about investing for retirement on your own, or you need help making a financial plan for your future, you may want to consider using a financial advisor who could help you map out your saving and investing strategy. Talk with friends or family members whose opinion you trust to get a recommendation. Then meet with the advisor to make sure you’ll feel comfortable with them. You may want to speak with a few financial advisors to determine which one is right for your needs.
Ask upfront how the advisor is compensated. Some advisors charge a flat fee or an hourly rate, and some earn commissions or combinations of fees and commissions.
Regularly Review and Adjust Your Plan
It’s generally a good idea to periodically review and, if needed, adjust your retirement savings plan. Life circumstances often change — such as changing jobs, marriage, having children, or facing health issues — which can impact your financial needs and goals.
Market conditions also fluctuate, affecting the performance of your investments. Rebalancing your portfolio as needed can help manage risk and keep your strategy aligned with your retirement timeline. Changes in tax laws or retirement account rules (like contribution limits) can also impact your plan. Staying informed and adjusting accordingly helps you avoid penalties and make the most of your benefits.
Regular reviews also allow you to monitor your overall progress and make changes if you are falling behind, such as increasing contributions or changing the mix of investments in your portfolio.
Common Retirement Planning Mistakes Millennials Should Avoid
As you work on your retirement plan, watch out for these five common blunders that could set back your savings strategy.
Delaying Saving for Retirement
Waiting too long to save for retirement is one of the biggest mistakes people make. In a 2024 survey by the Transamerica Center for Retirement Studies, 76% of retirees said they wish they had saved more on a consistent basis, and 49% said they waited too long to concern themselves with saving and investing for retirement.
Starting the savings process early is critical because, as noted above, the power of compounding returns can help you build wealth over time. Generally, the sooner millennials begin saving and investing your money for the future, the better.
Not Taking Advantage of Employer Matching
The employer match on a workplace retirement plan like a 401(k) is essentially a salary bonus. If you’re not taking advantage of it, you’re missing out.
If possible, contribute at least enough to your 401(k) to get the match. To get an idea of how employer matching could benefit you, consider this example:
Let’s say your annual salary is $60,000 and your employer offers $0.50 per dollar on the first 6% of your pay (a common formula). When you contribute $3,600 (6% of your salary), your employer kicks in $1,800, for a total of $5,400.
Withdrawing From Retirement Accounts Early
Taking early withdrawals from retirement accounts like IRAs and 401(k)s before age 59 ½ typically means incurring taxes and penalties. Not only does this cost you money, but you’re also losing out on the potential compound growth you would have had if the money had remained in your account. That could significantly set back your retirement savings.
While there are some specific situations where you can tap a retirement account early without penalties (such as financial hardship or buying your first home), it’s best not to withdraw money early from a retirement account if possible.
Being Too Conservative or Too Aggressive With Investments
As mentioned earlier, an investor’s tolerance for risk typically impacts how they approach investing. Going too far in one direction or the other, however, could end up costing you money. For example, millennials who take an approach that’s too risky — such as a portfolio heavily weighted with stocks — may end up taking big losses if the market dips.
Conversely, millennials who use a more conservative investing approach may be leaving money on the table by having too many lower-risk assets in their portfolio. Remember, the younger you are, the more time you have to recover from market downturns.
Ignoring Inflation
Many people calculate how much they’ll need in retirement based on today’s prices. But as the cost of goods and services rises due to inflation, your retirement income won’t stretch as far as you may have originally planned.
For example, if you need $50,000 to cover your expenses in the first year of retirement, a consistent inflation rate of 2.5% could mean you’d need to spend closer to $80,000 20 years later to maintain the same standard of living.
To make sure you’re setting aside a sufficient nest egg, it’s important to adjust your goals and investment strategies to keep up with inflation.
The Takeaway
Millennials face a number of financial challenges, including student loan debt, stagnating wages, and a higher cost of living. While retirement may feel like less of a priority at this stage of life, it’s important for millennials to start saving now so that their money will have a chance to grow over time. Options for retirement saving and investing for millennials include participating in an employer’s 401(k), opening an IRA, or opening a brokerage account.
The sooner millennials begin building their nest egg, the better their chances of achieving a secure retirement.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
How much should I be saving for retirement as a millennial?
How much you should be saving for retirement as a millennial depends on your specific situation, but there are popular rules of thumb that can give you some guidance. For instance, the 80% rule says you should have enough savings to replace roughly 80% of your pre-retirement income in retirement. Another guideline offers rough savings targets based on your age: By age 30, you should have saved 1x your salary; by 40, you should have saved 3x your salary; by 50, 6x your salary;and by 60, 8x your salary.
What’s the difference between a 401(k) and an IRA?
A 401(k) and an IRA are both retirement savings accounts. The difference between them is that a 401(k) is an employer-sponsored retirement plan that you can participate in at work if your employer offers it, and an IRA is an individual retirement account that you open and manage on your own.
Is it too late to start saving for retirement in my 30s or 40s?
It’s never too late to start saving for retirement. It’s true that the sooner you start, the better, since your money will potentially have more time to grow through compounding returns. But time is still on your side: If you’re 35 and you start saving now, that still gives you 30 years to save up for the traditional retirement age of 65. If you’re 40, you have 25 years to reach your retirement savings goals.
What are some good investment options for millennials just starting out?
Millennials who are just starting out can participate in their workplace 401(k) plan if their employer offers one or they can open an individual retirement account (IRA) that they manage themselves to save for their retirement. With either type of retirement account, you can typically choose from such assets as mutual funds, index funds, exchange-traded funds (ETFs), and stocks.
Should I factor in Social Security for my retirement?
Yes, you should factor in Social Security when planning for retirement. To find out what your Social Security benefit in retirement is expected to be, you can create a Social Security account at www.ssa.gov/myaccount. Then, you can get an estimate of what your future retirement benefits might be by using the Social Security Administration’s online benefits calculator.
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