4 Things Millennials Need To Do Now for Retirement

Retirement is one of the furthest things from the mind of most millennials.  I mean, it is 30-40 years away!  When I started my first job, it definitely wasn’t the first thing on my mind.  Also, saving for retirement is something that is rarely discussed in high school or college.  I know, retirement seems like it is decades away.  And it is.  However, the time is now to start securing your financial future.

81% of millennials are worried that Social Security will not be around when it is time for us to retire. So, if social security isn’t going to be there when it is time for us to retire, what are we going to do about it?   It is a reality that our retirement may look a lot different than our parents and grandparents generations. In fact, a recent article from USA Today stated that millennials will need an estimated $1.8 million (at least) when its time to retire!  That is a lot of money! Check out these 4 Steps that Millennials need to take now to secure retirement:

 

4 Things Millennials Need to do Now forRetirement

Start Investing

The first thing you need to do towards retirement is to start!  If you have an employer-sponsored retirement plan like a 401K, then start contributing.  Don’t know how?  Contact your Human Resources Department or benefits department for more information.  Contributions to your 401K come directly from your payroll; therefore, you don’t have a chance to spend the money and chances are you won’t even miss.

If you don’t have a retirement plan through work or you are self-employed, you aren’t off the hook.  Open up an IRA (or individual retirement account) in order to invest for retirement.  An IRA can be opened at your local bank or through an online broker.  The limit for 2016 is 100% of your compensation or $5500 (which ever is less) as long as you are under 50 years old.

If $5500 in a year seems too much for you, then start small.  A mere $50 every two weeks can add up over time. Also, depending on the investment vehicle you choose, the money will have time to compound in the market.

Free Money

If your employer offers a 401K, they may also match contributions.  Matching contributions are basically free money for you participating in the retirement plan.  Who doesn’t like free money!  For example,

Say you make $40,000 a year

Your Employer Matches 3% of your salary for your 401k

Therefore, if you put $1200 in your 401k; your employer will put another $1200. 


Increasing Contributions

If you already have started contributing to your 401k or IRA account, then you are off to a great start!  It’s time to lift the bar! Slowly increase your contributions. I find that the best time to increase contributions without feeling it in your wallet is when you receive a raise. Say you get a 4% raise every year. Decide to contribute an extra 2% to your retirement account and keep the other 2% for yourself. Your future self will thank you.

Avoiding Taking Money Out

Other than not starting to contribute early, another big mistake made by millennials is taking money out now. I know, the money is just sitting there. However, you have to think about the opportunity cost. If you take money out now, you aren’t just losing that amount for retirement. After growing in the market for 30 years, a mere $1,000 with an average rate of return of 8% would be over $10,000!

To avoid taking money out of your retirement accounts, ensue that you have a fully funded emergency fund. That way you can use that savings first. In addition, when you change jobs, make sure to take one of the three routes: leave the money in the old 401k, transfer it to your new companies retirement plan, or roll the money in to an IRA. Taking money out when you change jobs may result in a penalty of up to 20% as well as income taxes.

 

  4 Things MillennialsNeed to do Now forRetirement (1)

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Have you started taking any actions towards your retirement?  If so, tell us in the comments!  If not, what questions do you have to get started?

 

 

Disease Called Debt

41 comments

  1. Absolutely! These are great tips, and if used consistently, retirement doesn’t have to be 30-40 years away. Save like crazy now and you can ‘retire’ in 10-20 years, then you’ll have more time to focus on anything you want. It might be a different career, but you’ll be able to do it for the enjoyment you get and not have the pressure to bring home the big bucks anymore.

  2. Absofreakinglutely! ๐Ÿ™‚ . When l was still working, l made all my technicians contribute to the 401k plan. They didn’t understand it, just like l didn’t know what it was when 401k plans started years prior. Now the all speak with pride as most them have over $200,000 in their retirement plan. My way of paying it forward as l will always be grateful to the older pharmacist who basically forced me to do the same many,many years ago ๐Ÿ™‚

    1. That is so awesome! So many people don’t know the benefits of investing in a 401k! A little bit truly goes along way. I’m so glad you encouraged your techs to start contributing early.

  3. As always, excellent advice! I only wish I had started earlier and left the money alone. I’m onboard now!

  4. I’m all about a 401K, in the government we call it TSP. I have mine set by percentage this way as my salary increases so does my contribution.

  5. 401K’s and 403B are great ways to save for your retirement, but what happens when you don’t make it? Of course it can go to your beneficiaries, but that gets taxed like crazy.

    1. 401(k)s and 403(b)s are not taxed ridiculously for beneficiaries unless they take the entire amount in one lump sum (which would raise the beneficiary’s marginal tax rate). The key is to roll the 401(k) or 403(b) into an IRA so that the beneficiary gets an the income over time.

      Spouses can roll it into their existing IRA or set up a new one. The spouse doesn’t have to take distributions until the year the spouse turns 70 1/2, and then it’s just taxed as ordinary income. Alternately, the spouse can roll it into their own 401(k).

      Nonspouses can roll it into an inherited IRA. You have to take required minimum distributions from an inherited IRA each year that are taxed as ordinary income. Unless the account is huge, it’s not going to change the beneficiary’s tax rate significantly, and the beneficiary can choose to have income taxes withheld from the distribution.

      Rolling the account over or transitioning to an inherited IRA can be tricky, and you may need to get help from a financial advisor to do it properly. But please don’t let your fear of beneficiary taxes keep you from investing in a 401(k) and taking advantage of the tax savings and employer match.

  6. These are awesome tips for any age! I’ll have to share this info with my daughter for sure. Heck, I need to star doing a lot of these myself!

  7. These are great tips everyone should be taking advantage of if they are not already.

  8. These are valuable tips for folks of any age. Never too early, or too late to have good financial habits!

  9. Thanks for sharing this. ” taking out $1,000 with avg rate of %8 over 30 years would be $10,000.” Never really thought about it like this makes it even more motivating to save, save, save.

    1. Glad the numbers were helpful and motivating! Unfortunately, we miss the big picture when we don’t look at it that way.

  10. Thanks for sharing these! I hate that we don’t get taught this kind of information in school when it’s more valuable than Calculus or learning Latin.

    xo
    alyssa

  11. Take it from a 40 year old who wishes she’d done half of these things – do not leave it to chance!

  12. These are some great and simple tips to follow! I’ve already done a lot of these and honestly it can be so difficult. I always want to buy new stuff or go on trips!

    http://www.atrailofglitter.com

  13. Such great tips especially if you are in corporate and have done most of these if not all before leaving corporate 2 years ago. I need to develop a new plan since I’m now a work at home, stay at home Mom and no longer have at 401k provided by a company.

  14. Thank you for these tips! This is something I have such a huge level of uncomfort with—I haven’t even bought a car or house yet 3+ years post grad out of just fear.

    xoxo, http://www.piperellice.com

  15. I’m so thankful for my employer 401k match. Every little bit helps and folks underestimate the power of compound interest! Great article, Tia:)

  16. These tips are very helpful – thank you! I especially liked the “Free Money” section. I hadn’t thought about employers matching contributions to 401Ks. I am still a student (finishing my Masters in December) so I don’t have a job that offers a 401K but that is a good tip for when I hopefully have one! I will probably be free-lance most of my life since I am a performer but these tips are very helpful either way. I already save a little bit every month but this inspired me to keep doing it (maybe put in more each month) and to NOT TAKE ANY OUT! ๐Ÿ™‚

    1. Happy belated bday, Jill! I just turned 30 as well. The good thing is you’re thinking about the future now. That really is the first step to make changes.

  17. This is something most young people don’t know or think about. I was blessed to have parents who taught me about investing and saving. I also had a finance college professor who talked about it often in class. Great post!

    1. That is awesome that your college professor talked about retirement to you all a lot. I agree that personal finance education should be offered more.

  18. Wow this is a terrific post! My sister started me off right by encouraging me to start investing and getting the most contributions I could through my employer. A little bit goes a long way for sure! โ€‹

    Louisa
    โ€‹โ€‹โ€‹BLOG: โ€‹LA PASSION VOUTEE
    http://lapassionvoutee.com/

    1. That is awesome that your sister encouraged you to start investing! Keep up the good work. ๐Ÿ™‚

  19. I started saving for my retirement about 5 years ago. Iโ€™m Canadian so I mainly use the RRSP – tax sheltered and any amount you contribute reduces your taxable income triggering a tax return. I just started with a little amount at first โ€“ anything was better than nothing. In Canada taking money out of the account has huge tax implications so itโ€™s not a decision to be taken lightly. That discourages people from withdrawing money for sure. My biggest advice to anyone who hasnโ€™t started is just start and get going. If you prioritize saving for your retirement is like investing in your future selfโ€™s ability to buy groceries and keep the lights on. You will already be old โ€“ so you might as well have some money!

    1. Thanks so much for sharing your words of wisdom Sarah! Starting early is super important in the long run.

  20. I think this is 100% important for millennials to know! I’m only in my first “big girl” summer job, but my first thought is how to save more money. Maybe not for retirement, but just in general. I think it’s a smart move to invest in a retirement fund/401k early though!

    xo
    Sami
    http://www.theclassicbrunette.com

    1. Congrats on your first big girl job Sami! That is awesome! Saving a little bit now will def go along way and give you good habits.

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