Some members of the Millennial generation (who in 2024 range from their late 20s to early 40s) may feel like retirement is too far away to even consider. But as the adage goes, it’s never too early to start planning, and there are policies and trends making headlines today that will impact their retirement decades from now.

There is a dichotomy between the pessimism of Millennials when it comes to their retirement prospects and the popularity of the FIRE Movement with a desire to retire much earlier than their parents or grandparents, many of whom had the reliability of pensions for financial stability during post-working years.

Challenge: High Healthcare Costs
Retirement healthcare cost inflation ranges from 1.5 to 2 timesCPI. So, as years go on, the cost to insure – and cover out-of-pocket expenses – for an average retiree increases at a greater rate than CPI, Social Security’s Cost-of-Living Adjustment (COLA) and other economic measures.

For example, a healthy 65-year-old male in 2024 will spend $6,317 on healthcare costs (Medicare Part B and D premiums, supplemental insurance, and out-of-pocket costs for hospitalization, doctors, tests, and prescription drugs). But in thirty years, a now 35-year-old (by then, 65 himself) is projected to spend $24,231 – nearly four-times that amount. Over their respective lifetimes, the 35-year-old will spend around $900,000 more than his three-decades older counterpart.

Opportunity: HSAs
But one savings option has been available for most or all of the Millennial’s working career that was pre-dated many of the working years of previous generations: health savings accounts (HSAs).

Approximately half of Americans are currently on a high deductible health plan which qualifies them to invest in an HSA which provides tax-free savings, growth, and spending on qualified medical expenses. Data shows that long-term HSA contributions and savings can fund a significant portion of in-retirement healthcare costs with substantial tax savings. Currently, just under half of Millennials and Generation Z members who are eligible for an HSA are taking advantage of the opportunity.

Without the benefit of the employer-subsidized retirement healthcare coverage that many from older generations enjoyed, greater reliability falls on individuals who are approaching – or like Millennials are still decades away from – retirement. That is why HSAs are especially useful and aim to help people cover a critical expense category tax-free. When utilized properly, tens of thousands can be saved on qualified health expenses.

Challenge: Social Security Insolvency
Social Security is expected to remain solvent only until 2034 based on the latest projections. Challenges including greater longevity are leading to deficits that – barring legislative changes in the next decade – will lead to around 25% of benefits being cut.

Millennials – who are at least twenty years from benefit eligibility – are overall pessimistic about Social Security’s role in their own retirement. And while the program will likely exist in some form by the time they are eligible, potential future changes aimed at extending solvency (like raising the Full Retirement Age) may have a negative impact on their benefit projections.

And with most absent the reliability of a pension, personal savings becomes increasingly important.

Opportunity: Increasing 401(k) Contributions
Retirement plans like 401(k)s have grown steadily in popularity over recent decades, and company matches – common among these plans – allow for greater growth in savings. Likewise, automatic enrollment and contribution increases are more prevalent, better positioning retirement savings balances during working years.

While savings balances for Millennials still lag behind preceding generations, they have the benefit of time. With many years until RMDs and estimated retirement, younger Americans can still offset funding gaps by boosting contributions, especially as they gradually accumulate a large portion of the nation’s wealth.

Automatically escalating contribution rates throughout working years, as one presumably earns more money, is a reliable way to increase savings. Workplaces (through automatic enrollment and contributions) and the government (through laws like the SECURE 2.0 Act) are making it easier for employees to contribute to – and receive company matches on – their 401(k).

Let’s not forget taxable investment accounts managed by financial advisors. It is recommended that Millennials take advantage of HSA’s, tax deferred accounts and the benefits of working with a financial advisor.

Challenge: Greater Longevity
Younger Americans are projected to live longer than their predecessors in retirement. While this is a positive in many aspects, it does lead to greater savings needs for added years. According to HealthView Services data, a 35-year-old woman is expected to live to age 91, with a man that age anticipated to live until 89.

Those ambitious Millennials planning to retire at age 50 would have almost four decades of retirement to plan for, but even the most conservative ones planning to leave the workforce at 65 are looking at around 25 years, if they remain healthy. While Social Security does – and to a large extent in the future will continue to – provide reliable income no matter how long one lives, it is only meant to replace on average around 40% of earnings, and is not meant to be the sole source of income.

Opportunity: New Technology & Income Options
With technological advances, virtually all Millennials have access to financial advisors offering planning tools and resources that only a portion of the population had previously. Budgeting apps, investing platforms and a host of other services can be used from a smartphone, tablet, or computer, often with little or no fees attached.

The barrier to entry has been significantly lowered, and Millennials recognize this. During the COVID-19 pandemic, when activities and social events were limited, many young Americans who turned to day trading and other investing hobbies to pass the time become more educated on these important topics.
Even technology that’s not quite as novel can be helpful, with aforementioned 401(k) contribution escalations being as easy as a few taps on a smartphone while sitting on a couch. For generations past, a few extra steps may have been an excuse to not add that extra 1% to retirement savings.

While the challenges facing Millennials may be more daunting than for Gen X or Baby Boomers, so too are the opportunities. With greater access to information and fewer barriers to entry, essentially all member of this generation have the tools to reach their retirement goals. Being mindful of these ongoing changes – both good and bad – positions this next generation to enjoy a fruitful and secure retirement.