Millennials are the new face of the retirement crisis, those born between 1981 and 1996, are the largest living generation in the U.S.
If you fall into this age group, listen to some advice before you start raiding your retirement accounts.
With the economy stagnant due to the pandemic, Millennials may be wondering if they’ll ever be able to retire. Fortunately, there are some steps that they can take to boost their retirement accounts, including the following:
The Millennial’s Guide to Retirement Planning
1. Start Saving Now
If Millennials have one thing on their side, it’s the gift of time. However, too many people take this for granted, when they should be seizing the initiative and building their pension fund from the earliest possible age.
“In simple terms, this type of proactive approach affords investors more time to build their wealth while minimizing the amount that they need to save on a monthly basis.”
This is especially beneficial in the current economic climate, where inflation remains far higher than earnings growth.
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For Millennials, the key is to ensure that they opt-in to their workplace retirement plan, while also seeking out money-saving apps, savings accounts or investments that could deliver the highest returns over a period of years.
2. Seek out Professional Advice
When you’re focused on saving money, you can often lose sight of other factors such as the repayment of debt and your overall quality of life.
This is why Millennials need to create an integrated and holistic financial plan for their future, and one that factors in an array of different considerations and the transition between various life stages.
To achieve this, it’s important to seek out professional and actionable advice from financial advisors.
“Financial advisors can offer a comprehensive financial plan based on your circumstances, while also building incrementally towards your retirement.”
This will require a financial commitment, but this is likely to pale in comparison to the potential returns.
3. Minimize the Cost of Living
We’ve already touched upon the importance of maintaining a good standard of living, but this does not mean that you cannot minimize your monthly expenditure and optimize the amount committed to savings.
“The key here is to focus on recurring costs that can be reduced gradually over time, without compromising on your access to food, entertainment and utilities. These small but frequent savings accumulate over time, maximizing the amount of income left at your disposal.”
This will require a disciplined and focused mindset, but one that can really yield results in relation to your financial future. Or you can use price drop apps to help you find savings.
This strategy is certainly preferable to eliminating all big-ticket purchases, which are usually one-off items of expenditure that do not impact on your ability to save consistently.
So while you should always give consideration to your spending when trying to save, do not rule out funding holidays or buying a new car automatically.
4. Finally Learning Those Financial Terms
According to research that was conducted by Pew Research in 2011 and 2012, about 27% of adults ages 18-22 admit feeling “not too” or “not at all” confident that they will have adequate financial resources — through income and available assets — to last them through their retirement years.
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A major step in preparing adequate retirement strategies is simply informing yourself by reading highly rated personal finance books and learn some of the key terms in financial savings. These may include IRA’s, 401(k)s, and an understanding of assets — particularly as they apply to your own individual financial situation.
What is an IRA?
An Individual Retirement Account (IRA) is just one of the common terms tossed around in discussions of retirement strategy. As a type of savings account – available in the forms of a ROTH IRA, deductible IRAs, and nondeductible IRAS – IRAs are designed to help individuals save for their retirements while also offering tax advantages along the way. These can be set up at your bank, through an investment firm, or through an insurance company. Any person that receives or earns income is eligible to start an IRA account, and you will often see doing so as one of the top recommended steps when beginning your retirement planning.
What is a 401(k)?
Briefly, a 401(k) is a savings plan for retirement sponsored by an individual’s employer. With 401(k) benefits from your employer, a portion of your paychecks will be specially set aside for you 401(k), which allows for the gradual accumulation of savings over time. The money distributed into the plan is done so before taxes are taken out. Originally, the plan was designed to give individuals control over how their money is invested, and specific policies within the 401(k) plan may vary by employer.
What are Assets?
Assets generally refer to the items an individual owns that have value. These may be ordinary objects such as a refrigerator or a set of vinyls, or they may be your owned stocks, land/property, cash, and other investments. Assets increase your net worth. An investment strategy that particularly applies to retirement savings is asset allocation, which involves the balance of risk and reward through the shifting of assets according to the needs of certain investments and investors. I use Personal Capital to monitor my net worth and it’s completely free.
5. Every Little Bit Helps
One important thing to remember in executing smart retirement strategy — particularly if you are in your 20’s and just beginning the process — is that every little bit you can save helps. Retirement savings are supposed to be the accumulation of money over time that will be able to finance you in your later years.
“Forbes recommends that people in the 20’s stash 10% of their income, increasing that percentage to 20-35% in subsequent decades of your life.”
Saving a little and saving often ensures that you won’t find yourself in a pinch later on in life. This is one game of procrastination that you most certainly don’t want to play.
6. Create (And Stick To) A Budget
Particularly if you’re not transporting your income by the truckload, creating a budget for your spending is another responsible way you can allocate some money for your retirement savings.
“If you have already dealt with student debt or have otherwise created budgets in the past for food, transportation, and other expenses, the same idea can be applied to retirement savings as well.”
Organizing your finances can be key to ensuring you establish a legitimate, worthwhile savings plan for retirement.
All in all, although your initial impression might be that your initial years of decades – your own roaring 20’s – are too early to necessitate retirement savings strategies, experts and increasingly publicizing that that is indeed not true.
Starting your savings plan young is increasingly recommended by financial experts, and can only be beneficial for you long-term to ensure your comfort in your older years.
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For someone who doesn’t know how well their 401k is invested or would benefit from professionals analyzing it, it’s pretty powerful.
“You can make thousands of dollars easily over the long term just by getting a free 401k analysis here.”
More Millennials should be using this free tune-up to help optimize their retirement amounts.
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