A Retirement Guide for Millennials

It’s crazy to start thinking about retirement in your twenties and thirties, isn’t it? Actually, it’s crazy not to start thinking and planning for retirement then! Yes, the world will be very different in thirty or forty years. Forget the world; American society will be very different in twenty, much less thirty or forty, years. What this country, or even the world, will look like in the near future is something I will leave to sociologists and science fiction writers. But we still have to try to plan. The best we can do is move ahead and plan for the most likely futures and hope and pray that our choices are wise. The one thing I do know is that if you fail to plan, you have planned to fail.

So, let’s assume you plan for one of the reasonably imaginable futures ahead. There may not be paper money but there will still be some means of financial exchange. There may not be a workplace as we see it today but there will be some means of doing something called work in exchange for financial compensation. God made people to work and the competitive, accomplishment-driven nature of most people will result in efforts to make the world God has given us a better place to live, no matter how different that world looks than ours today.

How do you plan for an uncertain future? You plan for the uncertain by avoiding the known and obvious mistakes. Unfortunately, many people have a poor track record of avoiding obvious problems; just put up a wet paint sign and watch how many people touch the painted area to see if it is still wet. Some people, myself included, look at a warning almost as a challenge – a bit like, “I dare you!” Well, here are some warnings, historical mistakes people have made or seen over the years. Please do not take these as a dare to try each one or any of them.

Mistake #1 – Give only to yourself and neglect God

I start with the most obvious as well as the mistake that is most common – thinking “God can wait.” Truthfully, He can. But, it isn’t wise to leave God out of your present day or out of your retirement plans. As for the present day, remember that He is named “I AM.” Exodus 3:14. Wherever and whenever you are, He is. He has made it clear that He is not to be ignored. Haggai 1:2-6. As for the future, He wants to be in your plans. Luke 12:13-21. Don’t give just to yourself by hoarding your savings; make sure you both save and give to God.

Giving to God is a part of worship – it is worship! He is worthy. I Chronicles 16:25 and Psalm 96:4. You give to honor God and that is worship.

God is not “served by human hands, as if he needed anything. Rather, he himself gives everyone life and breath and everything else.” Acts 17:25. However, He is pleased when we exhibit His spirit of generosity. Additionally, in the Old Testament, sacrifices to the Lord were a form of worship and they were designated as “gifts”. Numbers 18:11. If you want a New Testament reference, see Matthew 2:11 where the wise men from the east worshiped Jesus in the form of “gifts”. The money given to Paul by the church in Philippi was seen by God as “a fragrant offering, an acceptable sacrifice, pleasing to God”. Philippians 4:18. That is worship.

I challenge you – try to be as generous with God as He has been with you. No. Make it a bit easier; try for a tenth of His generosity.

Mistake #2 – Don’t factor inflation into your plans

If you are spending a dollar on something today, know your spending almost inevitably will go up over time. One thing you don’t see in a short life is the enormous impact of inflation over time. When I was 16, I remember when a gallon of gas was 25 cents. My first car cost less than $2,000. In 1968, a Big Mac cost 49 cents. Our first apartment we rented while in college was only $250 a month. On the other hand, the minimum wage was only $1.60 per hour. We have watched prices (and income) soar. It is hard to plan for that, but it is essential. Inflation is real and you can be financially harmed by it if you ignore the fact that it is going to happen. See Inflation and Your Retirement.

To make matters more difficult, it is hard to know what you are planning for. Many retirement professionals will recommend you plan for 60 or 70% of your normal living expenses during your work life. But that is likely low, because although some expenses may decrease, others will increase. Medical costs are increasing far faster than the rate of inflation, and even retirement leisure, travel, eating out, and being active is far from cheap. If all you want out of retirement is to sit and watch TV and eat pizza, retirement will not cost a lot. But having only TV and pizza is not much of a life.

If you want to retire with the buying power of, for example, $75,000 today, inflation requires that you plan not for that but for more than that, a lot more. Assuming 3% inflation for 30 years, you will need a bit more than twice as much, or $152,442.34. Check it yourself on the US Inflation Calculator. That means you need to save more. See Save More – 10% Isn’t Enough.

Just as you are aging, so are your home, car, appliances, and everything else you own. Don’t forget long term care, assisted living, and higher medical expenses, all of which are highly likely as you age. You need a qualified financial adviser to you help you make this financial journey. 

Mistake #3 – Take no chances

Being a conservative investor has its advantages, but being too conservative is a poor investment plan for a young adult with 30 to 40 work years ahead. Remember inflation? The same compound effect of inflation that works against you can work in your favor if you invest your savings and beat inflation. See Inflation and Your Retirement. But you can’t beat inflation with a money market account, CDs or bank deposits. Over the long term, the market is the best opportunity you have to beat inflation and get ahead. 

Consider a target date fund. A target date fund (“TDF”), also referred to by some as age-based or lifecycle funds, is a collective investment scheme intended to provide a simple investment solution to aiming at retirement in the future. A TDF uses a portfolio with an asset allocation mix that gradually becomes more conservative as your target date of retirement grows closer. Pick the date you hope you are going to retire. If you start early enough, the fund will be more aggressive while you are many years away from the target date and automatically shift to more conservative investments as you near the target year.

Mistake #4 – Spend and enjoy all you can today

Life is short; eat dessert first! Carpe diem! Live for today! Those are enthusiastic words filled with enthusiasm for life. Robert Frost’s poem Carpe Diem included a figure referred to by the name of “Age” who encouraged children to:

“Be happy, happy, happy
And seize the day of pleasure.”

And remember, Jesus said,

Matthew 6:31-34
31  So do not worry, saying, ‘What shall we eat?’ or ‘What shall we drink?’ or ‘What shall we wear?’
32  For the pagans run after all these things, and your heavenly Father knows that you need them.
33  But seek first his kingdom and his righteousness, and all these things will be given to you as well.
34  Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.

But note that Jesus said, “do not worry,” not “do not plan or give any thought at all” to tomorrow. Ignoring the future can have an enormously high cost. The train of time and age is coming down the track. It is wise to look ahead and see it coming. You can’t avoid aging, but you can make aging better or worse. Instead, enjoy life today, but do it in moderation and grow towards a full life and a great retirement.

Mistake #5 – My kids are my life

One of the tragic mistakes that I believe history will say about the Boomers, the post WW II generation, is that the Boomers not only wanted a better life for their children, but some gave it to them – too easily. We and Generation X created the entitlement generation, also known as the trophy kids, the Millennials; they all get a trophy and there are no losers. That might make for a fun childhood, but it isn’t at all what real life is like.

Everyone should want what is best for his/her children but make them earn it. At the same time, do not give to them at the expense of your savings and future. There is a balance somewhere in-between heavy sacrifice and stinginess. Just as you don’t want your thirty-year old child living in your basement, you don’t want to have to live in theirs! Help with college but let them work and help themselves too. Yes, the wedding will be the best ever. But it can be the best without being the most expensive, and the honeymoon does not have to be an overseas trip. My wife and I did fine with 3 nights at Disney World.

Mistake #6 – Bigger, newer with more features is better

It’s a shame; my 9-year-old flat screen TV isn’t a smart TV. I think I need to get a new one because I need a smart TV. No, at most I WANT one because no one needs a 70-inch LED Smart 4k UHD TV that supports voice controls via Google Assistant or Amazon Alexa. Actually, I don’t even want one, in part, because I know that in a year it will be obsolete and passé. There will be some new feature(s) that will make me want to buy another new one. The same marketing urge is there for the newest phone. You know, it’s the one with the new features that will do things most people will never use and have more connectivity than they want.

There is a name for some of what marketing makes us do; it is called the Diderot effect. It is named after the French philosopher, Denis Diderot, who lived in poverty most of his life but made a series of what are now called reactive purchases when he received some money. He bought a new scarlet robe. Then he realized that he needed other new things to go with his new robe. The author says that you can see the Diderot effect, or reactive purchases, “in many other areas of life:

• You buy a new dress and now you have to get shoes and earrings to match.
• You buy a CrossFit membership and soon you’re paying for foam rollers, knee sleeves, wrist wraps, and paleo meal plans.
• You buy your kid an American Girl doll and find yourself purchasing more accessories than you ever knew existed for dolls.
• You buy a new couch and suddenly you’re questioning the layout of your entire living room. “Those old chairs? That coffee table? That slightly worn rug? They all gotta go.”

How true and how “modern America” that is. Much shopping can also be described as relational as well as reactive. Too much of shopping is done to fill emotional vacuums or in response to peer pressure. Recognize it for what it is and resist the urge to spend money, especially money you don’t have. If you don’t resist now, then in a year, it will start all over again. There is nothing new under the sun.

Ecclesiastes 1:9
9  What has been will be again,
what has been done will be done again;
there is nothing new under the sun.

Mistake #7 – That employer match isn’t that much

Many employers offer a 401(k) and quite a few offer a matching contribution by the employer to the employee’s account. That catch is that there is usually a “vesting” period, a period of time the employee must remain employed to keep the matching amount. It is a nice employee benefit that has a return benefit for the employer – employment longevity. That is a great deal for both. The employee who stays through the vesting period does not lose his or her own contributions. Later, they can remain in the 401(k) or be rolled over into an IRA if the employee decides to leave, dependent upon the terms of the company plan.

Not contributing to get the match is simply throwing money away. Employee Joe contributes 3% of a $50,000 ($1,500) salary to the company 401(k). The employer matches up to that same 3% so Joe has $3,000 in the 401(k) at the end of year one. But there is a 4-year vesting period so the extra $1,500 is only Joe’s if he stays 4 years. If Joe does stay 4 years, then the full $3,000 and any gains on it are his to keep. If there were average market gains of 6% during the 4 years, and more 6% contributions were made each year, Joe would have almost $9,000 that is his, including the 4-year-old match, with more to vest to him every year if he stays employed.

In other words, take the match.

But even more, max out your own contributions every year even without the match. Not contributing the maximum amount allowed by law for your income and age is also throwing money away. Money contributed early in life has a longer opportunity for growth. See Saving Mistake #2 above and the chart in 8 Financial Moves to Make in Your 20’s. If Joe contributed 6% and not 3%, the match remains on the 3%, then Joe’s balance at the end of 4 years grows to $15,800.

Now, continue that for 30 years and Joe’s retirement savings in his 401(k) will be substantial, well over $1,000,000. If Joe also saves some after-tax money in his emergency fund and in other after-tax investments, he may be well on the way to retiring before 65 or 66. How? Because Joe used the power of compounding his investment income.

Mistake #8 – Forget cash, use that card!

There is no doubt that it isn’t fun carrying around a wallet full of dollar bills. But what Millennials seem not to realize is that credit and debit cards come with a very high cost. Studies have consistently shown that people spend more – a lot more – when they don’t have the inconvenience of cash and use just a card. In 2008 the Journal of Experimental Psychology published a study “Monopoly Money: The Effect of Payment Coupling and Form on Spending Behavior.” That study is written in highly technical jargon but can be summed up easily. First, “people are willing to spend (or pay) more when they use a credit card than when using cash.” Second, “consumers tend to spend more when using a $50 gift certificate than when using $50 cash.” And third, “people were more likely to spend $1 which was in the form of a gift certificate than when it was in the form of cash.” Credit cards, debit cards, and gift certificates are not as “real” as cold, hard cash – and consequently people spend more.

Other studies support that result. Other studies show that shoppers paying with cards focus on the benefits of buying more that the price. Paying cash tends to make people see the price first and foremost.

Personally, I have not eliminated all use of credit or debit cards, but I do carry and spend cash – it cuts spending. And I NEVER charge what can’t be paid off before the end of the month.

Mistake #9 – Treating your retirement accounts like any other bank account

No, that 401(k) is not a bank account. While you can borrow from your 401(k) at commercial lending rates, doing so is unwise. When you do, the amount borrowed stops earning at the market rate. You are “paying yourself interest,” but you are also robbing yourself. Keep your retirement accounts set aside for that one purpose except for the direst of emergencies. You should have an emergency fund of at least six-month living expenses that is readily available and can be used to meet the requirements of most emergencies.

That also means that when you change jobs, you should not cash out your 401(k) and spend the money. There is a 10% penalty in doing so and that cuts heavily into your retirement plans. All you should ever do is roll the 401(k) over into an IRA. By cashing in your 401(k) you lose years of savings and progress. The cost of that in lost compound interest is often too great to overcome. See 8 Financial Moves to Make in Your 20’s.

Mistake #10 – Depend on debt

Biblical advice is always the easiest to give (and, unfortunately, often the easiest for people to ignore). Do NOT borrow money unless absolutely necessary. Literally, the borrower is a slave to the lender. Proverbs 22:7. For some purchases, paying over time (borrowing) is necessary, such as buying a home. When you do have debt, pay it off in the shortest possible time, get out of the bondage of debt. See What About The Problem Of Debt? and What About Debt?

The simple truth is that you are planning for an uncertain future, but the future is going to happen whether you plan and prepare or not. Do the best you can – and start today. If you don’t know where or how to start, give us a call. At The Idlewild Foundation we love to talk about God, you, your money, and your future.

About the Author

John Campbell has retired from a 40-year legal practice as a trial attorney in Tampa. He has served in multiple volunteer roles at Idlewild Baptist Church in Lutz, Florida, where he met Jesus. He began serving as the Executive Director of the Idlewild Foundation in 2016. He has been married to the love of his life, Mona Puckett Campbell, since 1972.