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Millennials Need a Long-Term Retirement Plan

Millennials more so than previous generations must understand that they will need to have a long-term plan.

Millennials, who just three years ago, lagged behind Gen Xers and Late Boomers in retirement preparedness are now catching up, according to a new Center for Retirement Research Report. In fact, new data for 2019 show that millennials are catching up in the labor market and in getting married and buying houses.

But, despite also having similar retirement savings, millennials’ huge student debt burden still leaves them well behind prior cohorts in wealth accumulation. And this slower wealth buildup is of particular concern as millennials will need more than prior cohorts due to longer lifespans and less support from Social Security, according to the report.

So what can they do?

According to Brandon Renfro, a certified financial planner in Texas, millennials more so than previous generations must understand that they will need to have a long-term plan. 

"I don’t mean that in the cliché sense that we always say to have a long-term plan, but that they need to give strong weight to the long-term effects of their choices in addition to short-term effects on their budget," he said.

For example, how they prioritize saving versus paying down student loans and the effect it has on retirement preparedness. "While they should absolutely be making the required payments, whether they choose to put extra money towards debt payoff or increased savings should be influenced by their long-term goals and not just the immediate emotional or psychological drive to pay off their student loans – although that is an important element that should be considered as well."

With interest rates just under 3%, Renfro said a strong case can be made to carry student loans longer, if payments are manageable, rather than paying them down early in favor of saving more. 

"While paying off student loans early is 'good,' the reality is that any money used to pay off those loans could be going toward something else so the real goal should be to do what’s 'best' with that money," Renfro said. "That could be making sure you get the most from an employer plan, maxing a Roth IRA each year, or investing in other wealth-creating assets such as rental property."

Millennials can also benefit, Renfro said, by making other lifestyle choices that moderate expenses on housing, cars, and other purchases that speak to standard of living. 

"Again, although it's useful, simple budgeting isn’t really the point here but consistent spending on these things creates a lifestyle expectation that is likely to carry through into retirement," he said. "If you develop a habit of reasonable moderation, then your expenses on those same items will likely be lower in retirement just out of habit."

That means, he said, the strain on your savings is less severe because you don’t have to support a more expensive lifestyle. "It also keeps you from a feeling of forced lifestyle cutbacks in retirement when you realize you simply don’t have enough savings to support your spending which can be a terrible feeling for a retiree," he said.

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