Retirement for Millennials
Without a doubt, retirement can seem like it’s ages away. But the sooner you start planning and saving for your golden years, the better! With compounding interest in play, now is the time to begin investing – so that when those twilight days arrive, they won’t feel cloudy at all.
Contrary to popular belief, Millennials are quite savvy with their money. Most have a budget in place and prioritize saving for the future; whether it be setting aside an emergency fund or planning for a special vacation!
Despite these good habits, some still delay their retirement planning. While that emergency fund you’re saving toward is important, waiting to invest in retirement may not be the best choice. Eighty percent of Millennials do not believe Social Security will be available for them when they retire. By only contributing to a traditional savings account, you could miss out on tax benefits and the potential to grow your nest egg with a retirement savings account.
What Are My Options?
Retirement savings account include:
401(k) – A 401(k) is a retirement savings plan offered through an employer. You’re able to choose how much you’d like to deduct from each paycheck-before taxes-and employers will often match a certain percentage of your contributions. Investment options are typically chosen by your employer’s advisor or fund manager, and you can then choose an allocation that matches your risk tolerance and goals. Alternatively, if you work for a nonprofit or governmental organization, you might have the option to contribute to a 403(b) instead.
IRA – Like a 401(k), an individual retirement account (IRA) is a tax-deferred retirement savings account you establish independently. With an IRA, you’ll have more freedom in how you invest your money, but you are more limited in how much you can contribute per year.
Roth IRA – Unlike most retirement savings vehicles, a Roth IRA does not provide tax savings on the front end. This account is funded with after tax dollars, allowing you to take retirement withdrawals tax-free. You can either contribute up to the contribution limit or up to 100% of your taxable income for that year, whichever amount is smaller. This is one of the most popular retirement planning tools available today.
Isn’t It Risky to Invest My Money?
One of the greatest misconceptions about investing is risk. While investments can be volatile, history tells us that time in the market is the greatest defense to risk. Timing the market increases risk while time in the market decreases risk.
We have seen many studies that show a large percentage of millennials are wary of investing in the stock market. This could be the result of seeing first-hand how much can be lost when the economy goes through a recession, such as 2007 – 2009. Lest we forget, millennials were born between 1981 and 1996. Many of this group have vivid memories of The Great Recession. This may cause Millennials to miss out on significant investment returns.
It’s true that there are risks associated with investing, but young professionals have an advantage. There’s more time to earn and save toward retirement, and, in the event of poor performance or a bad market, there’s also more time to recover. Moreover, during your accumulation phase, a down market generally provides opportunities to purchase shares at a discount. And you don’t have to be an expert on investments: A good financial advisor can help you choose a portfolio that’s aligned with your desired goals and risk.
Am I Saving Enough Money?
With the right financial planning, young professionals can reach their goal of a secure retirement. Yet our research found that nearly half guessed when estimating how much they need to save – resulting in an inaccurate perception and potentially unfortunate results later on. Fortunately, advisors are more available today to help Millennials make informed decisions about reaching their savings goals!
The reality is that everyone’s needs and goals are different, and there is no one-size-fits-all retirement plan. A written strategy can be a good starting point.
Outline your vision for retirement alongside your anticipated expenses, long-term healthcare needs, and government assistance. If you’re not sure where to start, work with a financial advisor, who can track current budgeting and spending habits, help you identify goals and increase your probability for success.
Crafting the perfect retirement plan is a task everyone should take seriously. Every person’s needs are different, which means there’s no one-size-fits all approach when planning for your golden years. Start by writing out what you dream of during this time: consider expected expenses, long-term healthcare concerns, government assistance options and more! If you need help creating an actionable strategy that increases success potential talk to a financial advisor who can evaluate your current situation and help you begin planning for the future.