4 ways millennials can save for retirement

Saving for a comfortable retirement doesn't have to mean a radical lifestyle makeover.

How much should millennials save for retirement (especially without giving up weekend brunch)? That’s the million-dollar question and, if you’re a millennial, you’re probably looking for a hint so you can get your finances into shape.

Ultimately, how millennials should save for retirement depends on their income, debt, long-term financial goals and what options they have for stashing money away for the future. Even if it seems way too far off to worry about, numbers don’t lie: The earlier you start saving, the smaller are the amounts you have to sock away at any one time, and the more you will ultimately have when it comes time to kick back in retirement.

According to a Bankrate survey, 56% of Americans say they’re behind in saving for retirement—with 37% of those saying they’re significantly behind.

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If you’re struggling to find the cash to save and running into obstacles to millennials saving for retirement, don’t fret. With simple changes, it’s possible to get your savings on track without committing to a total lifestyle makeover. Here’s how:

1. Strike a balance between student debt and savings

The average amount of U.S. household debt was $96,371, according to Bankrate.

The interest rate on your loans is a huge factor when deciding how much should millennials save for retirement, says Michael Lux, an Indianapolis-based attorney and the founder of a website dedicated to student loan education, strategy, and borrower advocacy.

“If you have a student loan with a 3.00% interest rate, it makes sense to invest in retirement rather than aggressively paying down the debt,” Lux says. “However, if you have high interest rates on your student loans, money used to pay down the debt will go much further than many investments.” So, if your loans carry a higher rate than what your investments are earning before taxes, you may get more bang for your buck by accelerating your debt payoff.

While you can’t wave a magic wand to get rid of your loans, you can sometimes find a way to make them less taxing on your wallet. Consolidating or refinancing your loans at a lower rate could offer savings by potentially reducing your monthly payment or interest rate. If you’re able to lower your payment without stretching out the loan term, you could use the extra money to start compounding your savings for retirement.

2. Track your spending

Keeping tabs on spending can go a long way toward overcoming the obstacles to millennials saving for retirement.

Kevin Michels, CFP®, says having a clear understanding of your cash flow can help you find the money to save.

Using a budgeting and spending app can take the hassle out of tracking your spending. These apps link with your checking and credit card accounts to record your purchases so you can see at a glance where your dollars and cents are going.

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Michels says once you understand what your current financial picture looks like, you can aim to improve it. This can help answer the question of how much should millennials save for retirement.

“Can you cut out unnecessary expenses or increase your income with a side hustle?” he says, suggesting gigs like freelancing, moonlighting as a ride-sharing driver, or hiring out your services via online marketplaces that connect consumers with people willing to lend a hand with everyday tasks. “Figure out exactly how much you can add in surplus each month to go toward saving for retirement.”

Once you’ve added income where you can, and if you feel like you still want to trim your expenses, taking a closer look at your discretionary spending might reveal some easy ways to save on everyday expenses. If you pay for a monthly gym membership, for example, perhaps you could change up your workout routine and start running or do yoga at home instead. If you go out to eat regularly with friends, consider swapping a night out for a potluck dinner or an at-home Sunday brunch—avocado toast and all—to save cash. Finding money for retirement doesn’t mean giving up fun completely. You may just need some new ways to approach it. This could help eliminate obstacles to millennials saving for retirement.

49 percent of millennials feel that they’re behind in saving for retirement.

Bankrate survey

3. Cash in on your employer’s retirement plan

Figuring out how millennials should save for retirement begins with understanding the options. If you have access to a retirement plan at work, that’s a great place to start, says Jake Serfas, lead financial strategist at a financial planning firm in Washington, D.C.

“A 401(k) offered through your employer can be your biggest tool in terms of saving money and preparing for retirement,” he says. Contributions to a 401(k) are deducted from your taxable income, potentially reducing your tax liability for the year. And you can use a 401(k) to grow your retirement savings faster if your employer offers a matching contribution. Not capitalizing on your employer’s 401(k) plan is actually a common retirement savings mistake.

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So how much should millennials save for retirement in their employer’s plan? Serfas says you should at least be saving enough to get the match, if there is one. Matching formulas can vary, but one common match is dollar-for-dollar on the first 6 percent of employee contributions. When you don’t chip in enough to get the match, you’re leaving money on the table.

But what if you don’t have a 401(k) at work? In that case, you could open an Individual Retirement Account (IRA). A Discover® IRA CD, for instance, offers competitive rates at fixed terms. Both 401(k)s and IRAs offer millennials a tax-advantaged way to save for retirement.

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4. Don’t be afraid to start small

Getting past the obstacles to millennials saving for retirement sometimes means having to work on a small scale to achieve your big-picture goal.

Michael Banks, founder of a personal finance and investing blog, says to answer the question of how much should millennials save for retirement, you need to have the right perspective.

“There’s no minimum amount required to start saving for retirement,” Banks says. “Even $20 a month is good, if you invest it in the right places.” Banks suggests micro savings apps, which allow you to invest your spare change in various diversified investments. Banks says the convenience of being able to track your investments from a mobile device may be especially appealing to on-the-go millennials.

“The amount you’re saving isn’t what’s important,” Banks says. “What matters most is saving consistently, early and often.”

If you’re starting your retirement plan from scratch, the Discover® IRA Savings Account might be a good option. With no minimum balance to open, this account allows flexible contributions to fit any budget.

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Set goals to avoid obstacles to millennials saving for retirement

The question of how millennials should save for retirement doesn’t have a one-size-fits-all answer. Setting goals based on where you are financially can help you reach your retirement savings objective. Making small changes can help you keep the ball moving toward your ultimate goal of a comfortable retirement without feeling overwhelmed.

Curious about how much you will need for retirement? (Hint: it’s probably more than you think.)

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