Millennials want to retire at 50 but how to afford it is another matter

Millennials came into professional lives during the Great Recession and are navigating a world in which traditional pathways to wealth are out of reach

Although Devangi Patel, 33, has been working as a cardiothoracic anesthesiologist at a large medical center outside Atlanta for only two years, her goal is to afford to walk away from her job at 50.

“That, to me, is the American dream,” she said.

Patel is not alone in her quest to become financially independent — and at a relatively early age. It seems that a generational shift is well underway: Many millennial workers don’t aspire to retire in their mid- or late 60s, like their parents. Instead, many with professional careers are seeking to leave their jobs by 50 and work for themselves or take a lower-paying role that is more aligned with their interests, studies are showing and financial advisers are finding.

“I want to get to a point where I don’t have to work for money anymore, and I can work for pleasure,” Patel said.

But reaching that goal has been harder than Patel anticipated. Although she contributes to a 401(k) and a Roth individual retirement account, invests in stocks with a brokerage account, and maxes out her health savings account, she is also paying off a $250,000 loan for medical school and paying for her wedding in December.

While many millennial workers such as Patel want financial independence in their 50s, it’s not easily achieved, said Christopher Lyman, a certified financial planner with Allied Financial Advisors in Newtown, Pennsylvania. “I have a lot of people coming in and saying, ‘I read these articles. I see people doing this. I want to do this, too,’” Lyman said. While he never tries to dissuade clients, he does inject some realism — that achieving that independence by 50 will most likely require saving between 50% and 60% of their salaries.

Millennials, who were born between 1981 and 1996, came into their professional lives during the Great Recession and are navigating a world in which traditional pathways to wealth, such as homeownership, are out of reach for a larger percentage of them than of those a generation ago.

Their attitudes are also being shaped, in part, by uncertainty: They are witnessing significant economic shifts just as they are striving to establish themselves. And they want to enjoy a post-career lifestyle sooner than later.

“It requires saving as much as possible and spending as little as possible, and doing both of these as soon as possible,” Lyman said.

While some millennials on this path identify with the movement known as FIRE — financial independence, retire early — others, such as Brit Minichiello, have broader goals.

“With traditional FIRE, we would spend no money and squirrel it away forever,” Minichiello, 36, said. Instead, she is aligning her savings with her desire to enjoy life before she turns 65, which is why she and her husband, Dave, 42, recently focused their savings strategy on buying a second home.

For Patel, it’s challenging to save 50% of her salary even though she is not a big spender.

“I would have to give up vacations and the things I like that are splurgy, like eating in finer restaurants or flying to New Jersey to see my family at the drop of a hat,” she said, adding that she could save $3,000 a month if not for her loan obligations.

Aspiration vs. Reality

Mark Smrecek, a retirement consultant and financial well-being leader at Willis Towers Watson, the consulting firm, said most millennials he works with are not actually able to save enough for financial independence by 50 — it’s just not realistic given their living costs and the lifestyle they aspire to. This year, the company’s Global Benefits Attitudes Survey showed that 36% of millennial workers in a broad range of industries were saving 5% or less of their income but wanted to save more, 26% had taken a loan from their 401(k) and 25% had withdrawn funds from their 401(k). Yet, 52% said they expected to retire before 65.

The 2022 Retirement Insights Survey from TIAA revealed similar views, with 31% of people ages 30 to 39 indicating that they have an above-average level of confidence in their ability to plan for retirement. Young millennials, those 25 to 29, are the most assured: 40% said they had an above-average level of confidence in their ability to plan.

Despite this confidence, millennials aren’t saving enough, and many aren’t contributing enough to their 401(k) to get the full employer match, Smrecek said.

Two of the challenges younger workers face in preparing for retirement: Fewer employers offer pension plans, and it’s no longer guaranteed that companies will match an employee’s 401(k) contribution. Fifty-two percent of private-sector workers had access only to defined contribution plans, such as 401(k)s, in March 2020, according to the Bureau of Labor Statistics. Only 12% had access to both a pension plan and a defined contribution plan, while 3% had access to only a pension plan.

What’s more, this lack of a pension or 401(k) match puts the burden on employees to save for their future, said Jake Northrup, a certified financial planner at Experience Your Wealth in Bristol, Rhode Island. “The responsibility has shifted from employers helping employees retire to employees helping themselves retire,” he said.

Not Waiting Till 65

Minichiello and her husband started saving about 53% of their after-tax income in 2010, in hopes of leaving their current jobs when she reaches her late 40s and he reaches his early 50s. Minichiello, a co-founder and partner of BEspoke Medical Affairs Solutions, a health care consulting company in Cambridge, Massachusetts, wants to explore her interest in nonprofits and executive coaching — a field, she said, that doesn’t pay as much as her current position.

“I don’t want to get caught up in save, save, save, and then retire at 65,” Minichiello said. She said she had seen too many people put their lives on hold until they retired only to become ill or have their spouses die.

Saving half their take-home pay hasn’t been that difficult, Minichiello said. “We never have the newest tech, we don’t buy new cars and we use everything until it doesn’t function any longer,” she said. Both she and her husband have six-figure incomes.

For a decade, the couple invested most of their savings in a brokerage account that earned compound interest and wouldn’t penalize them if they made withdrawals before they turned 59.5, as an IRA would. The couple has paid off their student loans, and they each max out their HSAs and 401(k)s every year.

Having a mix of traditional retirement accounts and more versatile savings accounts is crucial, Northrup said.

“You don’t want to have all of your savings in pretax retirement accounts that can be costly to use before age 59.5,” he said. Northrup will sometimes recommend that his millennial clients reduce their retirement savings to have more cash available for shorter-term goals such as buying a house, taking a trip or paying down debt.

Valerie A. Rivera, a certified financial planner and founder of FirstGen Wealth in Chicago, gives her millennial clients similar advice. When one of her clients was maxing out her 401(k) but struggling to save for a home, Rivera advised her to put that money in a brokerage account to be used for the real estate. “It feels different, more tangible and desirable, because they can access it,” she said.

When Minichiello and her husband decided to save money for a second home in mid-2020, the couple’s savings rate dropped to a range of 40 to 50% . Instead of investing their money, they squirreled it away in a high-yield savings account they named Awesome Life Fund.

In 2021, they bought a home on Cape Cod, which they plan to rent out when not using it with their two young children. “I believe your financial approach needs to be aligned with your values,” Minichiello said. “I value freedom and flexibility more than anything else.”

Multiple Sources of Income

Few millennials, Minichiello included, believe that they’ll have access to Social Security funds when they reach 62, and many are skeptical that traditional plans alone, such as a 401(k) or Roth IRA, will be adequate.

“I don’t know anyone who says, ‘Thank God I have my Roth IRA,’” said Joshua Frappier, 34, a real estate agent in Newburyport, Massachusetts, selling properties in southern New Hampshire and on the North Shore of Massachusetts.

Lyman agrees that even contributing the maximum amount to a 401(k) plan each year — this year’s limit is $20,500 — wouldn’t enable you to save enough money to be financially independent at 50. You would need other assets, such as real estate, an investment account or a business that generates passive income to create enough wealth, he said.

To stop working at 50, Frappier is focused on creating several revenue streams beyond his full-time job as a real estate agent. Without passive income, he said, “you don’t have a means of getting ahead of your financial limitations.”

Frappier owns two single-family properties in Hampton Beach, New Hampshire. He lives in one and rents out the other, which he estimates generates at least $60,000 a year in income. He’s in the process of buying a 10-unit property with several other real estate investors.

“I plan to acquire as much real estate as I can as fast as I can while it’s cheaper than it will be next year or in 10 years,” Frappier said. As a Marine veteran, he is eligible to receive low-interest loans, but because he left the military before logging 20 years of service, he is ineligible for a pension.

He believes that real estate will give him a better return than the SEP-IRA, designed for self-employed workers, to which he contributes annually. He paid off his student loans years ago and recently opened a brokerage account.

Frappier knows that he is fortunate to have a financial plan. “Almost everyone I ever talk with doesn’t really have a retirement plan,” he said, “and they’re caught up in the battle against their happiness and their careers.”