How to Plan for Retirement as a Millennial
01 06 2017
We all want a comfortable retirement that allows us the freedom and choice to live life the way we deserve - to have the means to do the things we want with the people we hold dear. But in order to get to that point, it's essential to prepare with a targeted, flexible financial strategy that ensures support for our individual lifestyles at retirement.
50% of Americans are Not Currently Saving for RetirementIn the past, we've noted that nearly half of Americans don't have ANYTHING saved for retirement. They're living paycheck-to-paycheck and trying to stretch every dollar in the present - not the future. These circumstances certainly paint a dire picture for the financial health of our country in the coming years.
But there's a way out.
Start Investing Sooner Rather than LaterIn a recent survey from Luntz Global Partners, successful investors were asked about the one thing they'd do differently if they could have a second attempt at their financial strategy. Their number one answer: to start investing and preparing earlier.
But that's easier said than done. Setting aside money amidst the tidal wave of expenses, debt, and bills we each encounter on a monthly basis is extremely difficult. It means delaying our gratification in order to be forward-thinking.
Let's take Millennials for example. They're likely beginning their careers, starting a family, paying off student loans, and potentially putting a down payment on a home to begin a 30-year relationship with a mortgage. That doesn't leave many spare dollars each week to invest.
But there are some hints we can provide that can help Millennials be successful savers and prudent planners. After all, the earlier they start, the better chance they have of attaining their retirement goals down the road.
3 Ways Millennials Can Start Saving Better For Their Future, Today:
1. Participate in Some Type of Automatic Savings Program.
401(K), 403(B), or Roth IRAs are a great way to begin your journey to a safe and stable retirement. Many employers offer one of these programs that deducts a percentage of your income before taxes and invests it into a long-term mutual fund. There are numerous benefits here.
First, many companies also offer an "employer match" program which contributes an additional percentage of your income whenever you participate. That's free money.
Second, the money is detracted before tax, meaning you don't have to pay tax on that income. Sure, you'll have to set it aside as there are often penalties and fees for removing funds from one of these programs before they fully mature; however, in the short term, you're gaining income without paying taxes on it. More free money.
And third, because of the way returns are set up on these accounts, they tend to grow exponentially Therefore, the earlier you start your account, the longer it has time to accrue these returns and the larger it will grow by the time you're ready to retire.
According to the Transamerica Center for Retirement Studies, 30% of Millennials who participate in a retirement savings account contribute more than 10% of their salaries. However; according to the Federal Reserve Survey of Consumer Finances, the overall percentage of Millennials contributing to a retirement account is about 10% LOWER than the average for all ages. Those Millennials who are saving are doing a good (if uneducated see No. 2 below) job, but they're still far behind the national average for participation.
2. Create a Retirement Strategy.
As with everything worth knowing in life, the more you do your homework... the more you'll get out of the experience in the end.
Again, according to the Transamerica Center for Retirement Studies, 57% of those in their 30s only "guessed" at the retirement saving financial goals. And over two-thirds say they "don't know as much as they should" about retirement investing.
They also found that more than three-quarters of those in their 30s are doing some type of retirement savings. That's a lot of people investing without the information necessary to capitalize on their investment ... and there's clearly a big knowledge gap.
The journey to a successful retirement requires a well-thought-out roadmap to get you to your goals. Spend the time at the beginning to ensure you're setting yourself out on the right path for success. It'll pay off at your destination.
3. Play to Your Strength: TIME.
What inherent advantage do Millennials possess that no other investor can claim? They've got more time before they retire for trial and error. Everyone makes mistakes. Everyone acts on bad information. Everyone will encounter losses at some point while they invest and save for the future.
But not everyone can recuperate from those mistakes with the grace and tenacity of Millennial retirement savers due to one simple fact: they can afford the time.
Those in their 50s and early 60s HAVE to play it much safer with their retirement saving strategies because they're close to reliance on those funds and financial plans.
How do Millennials bring this competitive advantage to life in their savings and investments? Diversify. Diversify. Diversify.
Younger savers can afford more risk in their investments. That doesn't mean buy shares in every new IPO offered or turn exclusively to alternative investments. But we are saying that Millennials can do what they do best: think outside the box.
If Millennials can start earlier with small steps, the payoff in the long run can be huge.With the right goal in mind, every Millennial can begin meaningful savings that will one day make their dream of an enjoyable, livable retirement into a reality.
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