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Retirement Planning The Millennial Way

Amy Fontinelle
Money doesn't last forever. Even the rich have to monitor spending to keep it. Although Millennials are expected to be the beneficiaries of the largest wealth transfer in history, family wealth and assets fail to outlive the generation that created it 90% of the time.That's typically due to a breakdown in communication within the family because heirs are unprepared or as a result of tax or legal issues. In fact, a Merrill Lynch study found that 69% of high net worth Americans want their money to last through their children's lifetimes, 43% through their grandchildren's lives and 17% want it to last forever.

As a Millennial, you probably see your career trajectory and retirement differently than your parents saw theirs. As a Gen Y'er, you don’t want to work for the firm until you're 65 and later try to do your own thing and enjoy life. You want to pursue your ambitions now, whether that means going for your dream job right out of college, starting your own project, working for someone else's promising start-up or creating a location-independent business. You want a job that allows you a great work-life balance while you’re young so you don’t have to wait to travel, start your own non-profit or pursue your favorite hobbies with vigor. You may even be planning not to retire at all because you love what you do.

With a career that doesn’t fit the old pattern comes the need for a new long-term financial strategy. In fact, depending on how you see the future, you might need one of three very different strategies. Here are real-life ideas on how to plan your saving and spending so you can afford one of these new, unconventional forms of retirement planning, if any of them represents your dream come true.

Worker or Entrepreneur for Life

Many Millennials see themselves working forever, but not because they expect to be forced into that situation by a bad economy or poor financial planning. They envision a lifelong career because of their passion for their what they do.

“I have taken a very different approach than my parents,” says Michael Solari, a 30-year-old Certified Financial Planner and principal with Solari Financial Planning, a New Hampshire-based, fee-only financial planning firm with offices in Bedford and Nashua. “Initially, when I got out of college I took the normal path working for a large company, but after I got laid off in 2009 I decided to take my career in my own hands,” he says. “I love financial planning, so I started working toward creating my own firm.”

Last year Solari launched his firm, which caters to young professionals. “I'm so happy with my decision, and I plan to work until I can't physically,” he says. He enjoys the ability to create his own schedule to give him a work-life balance, which is most important to him because he observed his parents being strapped to their companies. “Retirement is for people who are unhappy with their careers,” Solari says.

Even if you’re planning to work throughout your life like Solari is, you still need to save for retirement; you need a safety net in case you can’t work forever because of illness or disability – or because you're pushed out of your job and can't find another. It’s also possible that you might one day change your mind, as priorities that take time away from work, such as family, become more important. You’ll appreciate having the flexibility that retirement savings will give you. Beginning to invest for the long term at a young age is one of the smartest things you can do, because you don’t have to set aside as much as someone who starts investing later in life to end up with the same nest egg. Investing $100 per month in the stock market for the next 30 years would give you $117,000 assuming a 7% return; make that investment for the next 40 years and you’ll end up with more than $248,000. Making your money work for you is a good idea no matter what your life plans are.

Another smart financial move is buying long-term disability insurance while you’re young and healthy. You’ll qualify for better premiums, and this insurance offers you another safety net. If you become unable to work for an extended period because of illness or injury, this insurance will provide a steady income to help you pay your bills, remain in your home and obtain the best medical treatment.

Extreme Early Retirement

Perhaps the best-known advocate of retiring incredibly early in life is Jacob Lund Fisker, creator of the Early Retirement Extreme website and author of a book by the same name. Fisker, a native of Denmark who became a permanent U.S. resident at age 31, writes on his website that “most people separate their work and entertainment and refer to it as their work-life balance.” He instead advocates and lives by a philosophy based on “a set of values and principles that gives me the freedom and opportunity to live a life I find exciting and interesting.” He writes that he became financially independent at 30 (he’s now 38), that his current net worth is 64 years’ worth of his annual expenses and that his passive income is twice what he needs. He achieved financial security and a fulfilling lifestyle despite an unimpressive income and now lives on about $7,000 a year, despite being in the pricey San Francisco Bay Area.

Extreme early retirement isn’t for everyone, as it means living differently from most people. You must be willing to be “weird” by doing things such as limiting your household food budget to $50–$75 per person per month, not owning a car, foregoing cable television, eschewing a fancy wedding and pricey honeymoon, skipping grad school unless you receive a full scholarship and shunning expensive housing, though you may choose to enjoy some of these amenities and experiences depending on your values and your budget. By sacrificing a consumer-driven lifestyle, you may be able to amass a large enough nest egg at a relatively young age to be able to retire very early, even at 30 as Fisker did, and live off your investment income. Some ways to build that sizeable nest egg early in your life: a decade of exceptionally hard work, amazing entrepreneurial success or stock-sale proceeds from the startup you helped get off the ground. Needless to say, it's a formula not everyone can employ.

But if you can, and have the willingness to color outside the lines of what most Americans consider normal, retiring early means learning to create and follow a budget, and to invest in index funds and ETFs. To learn more, read ETFs Vs. Index Funds: Quantifying the Differences. You’ll have to get health insurance, but you might choose to self-insure in other areas. You’ll need an emergency fund (everyone does). You’ll also need to do the math to figure out how much wealth you need to accumulate, how quickly and the rate at which you can safely withdraw it to meet your lifestyle goals while preserving enough principal to keep generating income. Many people postpone these financial tasks until later in life, when the prospect of not being able to retire is staring them in the face. If you want to retire young, you have to do them now and go all out. But if time is more important to you than money, Fisker writes, you may find that you need much less than the recommended $1 million in retirement savings and can therefore accumulate your needed savings rapidly.

Partial Retirement Now

Living a partially retired lifestyle is the most moderate approach, but perhaps trickiest to plan for financially, because you have one foot in the work-forever camp and one foot in the extreme-early-retirement camp. Your pool of potential jobs shrinks because 40-hour work weeks aren’t for you; they don’t leave enough time for life beyond work. You need a part-time job with better-than-part-time pay so you can not only afford to work less now, but also so you can save for the future. You might achieve this goal through freelancing on your own schedule or by running or working for a location-independent business that lets you combine work and travel, work and culinary school, work and volunteering, or work and whatever your outside-of-work passion is.

As with retiring early, budgeting and minimizing expenses are key; this will let you live off the income from fewer hours of work and afford any expenses associated with your non-work activities. Your long-term saving and investment strategy should be based on whether you want partial retirement now, plus working forever – or partial retirement now, plus a conventional retirement (or if you’re really extraordinary, partial retirement now and early retirement).

John Crabtree, 28, of Sodus, Mich., says he is effectively partially retired. His work as a maintenance contractor at nuclear plants during refueling outages mostly takes place in spring and fall, giving him summers and winters off. “We live relatively frugally and save 30% of our income,” he says. “20% goes into tax-advantaged retirement accounts and 10% goes towards paying our house down early. We plan on having the house paid off before our children start college and having built enough wealth that we can retire by age 45.” He says that he really enjoys his job and may choose to work eight to 12 weeks a year in early retirement.

Kelsey Goeres, a 22-year-old social media associate in Calabasas, Calif., takes a different approach to partial retirement now. “From as far back as I can remember, I have wanted to do two things: write and act,” she says. “I work part-time at a wonderful company, MyCorporation.com, where I write blog posts and tend to the social media accounts, among other marketing-related tasks. When I'm not at the office writing, I'm performing with my improv troupe, rehearsing for a play or shooting a film,” she says. “I get to do what I love to do every day now, so, though I am setting aside money to be comfortable later in life, I hope there is never a time when I won't get to work.”

The Bottom Line

David J. Bradley, a 23-year-old entrepreneur and MBA student based in Providence, R.I., sums up how many Millennials feel about retirement.

“The retirement experience should be lived throughout life,” he says. “It might take some extra work and building passive income streams for the future,” but he doesn’t want to wait 40 years to enjoy the benefits of retirement. “I want to travel while I'm young, make my schedule fit what I want to do more than what others tell me to do, and live my ideal life,” he says. While his values force him to be mindful of how he spends his money, he focuses his discretionary income on taking at least one vacation each year and pursuing different activities and experiences as often as he can.

“That's what retirement, the golden age of our lives, is all about after all, right?” Bradley says. “So why not start now if we can?”

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