3 Ways Millennials Can Prepare for Retirement

Author: Matthew Harris

Being in a strong financial position is imperative for an enjoyable retirement. As a result of poor money management practices in the past, a significant portion of Baby Boomers leaving the workforce have not been able to completely reap the rewards of their decades of labor.

According to the Federal Reserve's Report on Consumer Finances, the average American household enters retirement without enough money to continue living in the manner to which they have become accustomed. Even more disheartening is the fact that over 36% of working Americans have not even started to save for retirement, as revealed in findings from a BankRate survey. In fact, one in every four U.S. families have no savings at all. For the next generation of retirees, the word retirement, in its truest form, may very well be redefined. (For more, see Setting Retirement Goals: What's Your Number?)

Here is the good news: it's not too late for Millennials​ to work on having a secure financial future. With more than twenty years to plan and prepare for retirement, Generation Y has the ability to create outsized wealth and turn the trend of work until you die around. Below are three ways that Millennials can prepare for their retirement years.

Increase Earned Income

The most powerful wealth creation tool is income. In today's world, where the majority of a person's wage disappears as a result of high inflation, saving for retirement just will not cut it. For the most part, there is a limit to how much a person can save each month. However, there is virtually no restriction on how much an individual can earn. Thus, Millennials will find much more financial success in discovering ways to make more money rather than struggling to conserve and protect what little they have.

Becoming a part-time affiliate for a product or service, taking on a full-time, commission-based sales job and starting a low overhead business in your community or online are great ways to increase earning potential. The key for using this strategy when preparing for retirement is that as your income increases, your expenses should remain the same. In other words, the additional amount of income made each month should be saved or invested instead of spent. (See also, Money Habits Of The Millennials.)

Acquire Income-Producing Assets

Acquiring income-producing assets over time is also a wonderful way to prepare for retirement. These could be rental properties, shares in real estate investment trusts (REITs), peer-to-peer lending notes as well as bonds. In the beginning, the income made from these investments may not be sizeable, but if reinvested for several years, a millennial could build up a strong investment portfolio and create a decent income stream that can supplement savings, pension distributions and social security payments by the time they retire. (For more, see 3 Ways Millennials Can Invest in Rental Properties.)

Reduce Debt

Any debt that does not help to increase a person's overall net worth in the long-run should be avoided both before and during retirement. According to Dave Ramsey, one of America's most prominent financial advisors, Debt affects your ability to accumulate wealth in your earning years. Instead of having the burden of making interest payments, a millennial without debt can find more productive places to put his or her money.

A retiree without debt will be able to benefit from a good amount of purchasing power. Additionally, paying off debt while still working will help to eliminate a huge leakage of savings during retirement time. This can be extremely helpful for those persons who retire with insufficient amount of savings. They may not have a large cash reserve but at least they do not have to worry about making a monthly car payment or paying down a mortgage.

The Bottom Line

Poor money management decisions can either make a person's last few years of life a great reward for decades of hard labor or a total nightmare. Millennials who hope to be able to travel the world and spend a lot of time with their family after leaving the workforce should begin to prepare for retirement now. Discovering ways to create multiple flows of income, no matter how small, is a great way to start. With increased cash reserves, Millennials can eliminate debt and acquire income-producing assets that can become very beneficial during retirement years.