Go to school. Get a job. Work your way up the ladder. Contribute to a 401(k). Retire at 65. Enjoy life.
That’s the old retirement model your parents followed.
But today’s young adults are creating a new model for retirement — one that doesn’t require them to put off freedom until they’re 65.
“After watching our parents and grandparents work for 30-plus years, millennials fully understand that a job will not make you wealthy,” says Forbes contributor Ashley M. Fox. “We are purpose-driven and disruptive individuals who believe that anything is possible. So, instead of waiting for freedom at 65, we intend to make it happen each and every day of our lives.”
This can manifest in two distinct ways:
1. Become financially independent
After working in finance for just seven years, money blogger J.P. Livingston quit her job at age 28 with $2.25 million saved. Socking away 70 percent or more of her income and making smart investments allowed her to achieve financial independence and retire early — and she’s not the only one.
“Millennials are the first generation to shun traditional retirement and seek financial freedom instead — when income from savings is enough to cover expenses, and working becomes a choice, often long before the age of 65,” says CNNMoney. “Becoming financially independent and retiring early, a process known as ‘FIRE,’ can be achieved at any income level by saving a high percentage of your salary, or cutting your expenses — or both.”
If early retirement is for you, it’s totally doable. But it does mean you need to start preparing for retirement now. You’ll also need to adjust your lifestyle so you can save at least half your income every month.
2. Become an entrepreneur
On the other end of the spectrum, many millennials don’t fancy buckling down at a high-paying job just so they can save up and bail early. Instead, they’d rather spend their whole lives pursuing their passions — even if it means they keep working well into their senior years.
“Rather than cashing out after working in the same job for 40 years, many of us would rather enjoy a more entrepreneurial career while earning well beyond typical retirement age,” says Forbes contributor Zach Conway.
If this route appeals to you, you’ll definitely want an individual retirement account (IRA) to help supplement your income in your later years. Even if you don’t plan on fully retiring, contributing to an IRA now will help take some of the pressure off as you age, allowing you more financial freedom.
Regardless of which path you end up choosing, your retirement savings will play a key role in helping you live the retirement lifestyle you want. Once you have a goal in mind, your next step is to talk to a financial planner, make a retirement plan and choose the investment option that’s best for you.
What kind of retirement do you want?
If the two scenarios above won’t work for you, it’s still important to plan for retirement. When you were a kid, people asked what you wanted to be when you grew up. When you were a teenager, they asked what you wanted to major in at college. In your 20s, they want to know your five-year career goals.
But why doesn’t anyone ask what you want to do when you retire?
We spend so much of our lives envisioning our careers, we often don’t think much about what comes after. When you’re young, retirement just seems too far away to worry about. But it’s not as far away as you think, and starting your retirement savings now can make a big difference in your future lifestyle.
Creating a clear vision for your retirement gives you a concrete goal to work toward, which can help motivate you to start saving. These days, retirement can last for decades, which means it’s just as important to plan for as your career is. How would you like to spend those glorious, nonworking years? If you’re one of the 66 percent of young adults who haven’t started saving for retirement yet, it’s worth putting some thought into that question.