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:
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.
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.
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.
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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?