Millennials – The Time to Start Saving is Now!
Typically, younger people don’t make retirement savings a priority. Living expenses, student debt, rent or house payments, and other day-to-day expenses mean retirement savings take a back seat. In fact, research from National Institute on Retirement Security says 66% of millennials haven’t saved any money for retirement, and 66% haven’t started saving.1 This attitude will make it much more difficult to have a secure retirement later, according to seasoned retirement plan advisors.
The main thing millennials are sacrificing by not saving now is time. Time allows funds to grow through compounding, which can turn relatively modest savings into much larger nest eggs. For example, saving $50 each month in a retirement account earning 6.5% annually and compounded monthly would generate retirement savings of $226,781 over 50 years. A millennial who starts saving the same amount 30 years later, allowing it to only compound for 20 years, would have only $24,525 at the end of the 20 years.2
And $50 each month isn’t a huge amount, even for a cash-strapped millennial. Some other retirement savings tips include:
Take full advantage of employer-sponsored retirement plans, like 401(k) or 403(b) plans. Funds contributed to these tax-advantaged programs grow free of taxes, which means more money stays in the account to generate interest.
Contribute at least as much as your employer is willing to match. If your employer matches 3% of your salary, you should start by contributing the same.
Otherwise, you’re “leaving money on the table.” Your employer match instantly increases your contribution, and your money grows faster.
Don’t worry about not being an investment expert. Many retirement plans now offer target-date funds (TDFs) – also known as lifecycle or age-based funds. TDFs automatically adjust your investment assets as you age, so you don’t need to balance your funds yourself.
One common objection millennials have about contributing to an employer-based retirement fund is they may not stay with the same employer. Actually, very few people stay with a single employer for their entire careers, and retirement plan funds can be rolled over into a new employer’s plan or rolled over into an IRA if you leave your job.
For more information on joining the plan or increasing your deferral amount, please contact a KerberRose Trusted Retirement Advisor at (715) 524-6626 or 401kservices@kerberrose.com.
1 Millennials Report, NIRS. https://www.nirsonline.org/wp-content/uploads/2018/02/Millennials-Report-1.pdf
2 Simple Savings Calculator, Bankrate. http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx