There's a lot of hand-wringing in the finance industry about how millennials are retirement planning, or more specifically, how they're not.1 Millennials have different priorities than those of generations past. They're more worried about repaying hefty student loan debts2, and they're waiting later to buy homes and have children. Many entered the workforce at a particularly unstable time in our nation's economy, and others didn't find their career footing right out of college, which means they started their careers much later than anticipated. Now, as the first few waves of millennials hit 30, it's increasingly important that this generation turns their focus towards creating a solid retirement plan. If you're not sure where to begin, you may want to consider the following suggestions.
Fund an IRA
If you haven't made any sound financial plans for retirement, consider opening an IRA (Individual Retirement Account). IRAs allow you to funnel your money into a wide variety of investment opportunities, such as stock portfolios and low risk government bonds, etc., and they have big tax advantages. You can choose between a traditional IRA or a Roth IRA, which allow you to deposit your income pre-tax or post-tax, respectively. (Pre-tax contributions made into a traditional IRA will be taxed when you withdraw them later in life. Post-tax contributions made into a Roth IRA can be withdrawn later free of taxes.) So if you put aside $5,500 in your IRA every year (the max allowed contribution for those under 50), you'll have over $220,000 in contributions to that account in 40 years' time, and that's before any interest is added.
Gradually increase your contribution to your 401(k) or other retirement savings accounts
If you have an employer-sponsored retirement plan such as a 401(k), you should gradually increase your direct contributions over time. It's usually suggested that those new to 401(k)s start by contributing around 10 percent of their salary to such plans, but as you age, you'll want to bump that number up as much as possible as you near retirement. Want to retire sooner? Then bump that percentage up faster. If your employer matches your contributions to your IRA up to a certain percentage, make sure you're taking full advantage of such opportunities. That's free money for your retirement.
Get educated about Social Security and other retirement benefits
Know what's owed to you. It's important that millennials understand how Social Security works, as well as other retirement benefits such as Medicare and even Disability benefits-should you need them later in life. It's even more important to know how far your post-retirement Social Security payments will actually go after a lifetime's worth of inflation and cost of living adjustments. (Depending on social security benefits alone to ensure your ability to retire comfortably could be risky.) You can find a wealth of info about your future benefits at the website for the Social Security Administration.
Retirement may feel like it is eons away, but it's important to stay connected to your retirement goals. You can use several of these free online budgeting tools to keep tabs on your retirement portfolio. If you need help understanding the basics of 401Ks or the difference between Traditional IRAs and Roth IRAs, we have helpful information in the Protective Learning Center.