According to a recent study from the Transamerica Center for Retirement Studies, the median retirement savings for millennials is $31,000.1 While that may be a good start, it’s well short of what many millennials will need to fund a long and enjoyable retirement.
Millennials will face a number of challenges that previous generations didn’t face. The first is longevity. Life expectancy continues to increase. The medical industry is rapidly developing new treatments, services and technologies. It’s possible that millennials will live longer than any previous generation. If so, that means they’ll have to fund more years of retirement, which means they’ll need more savings.
There’s also the fact that millennials have to shoulder much of the burden for funding their retirement. Previous generations could rely on employer pensions, but that’s a benefit that has largely disappeared. Social Security benefits could also be reduced in the future if the program’s funding issues aren’t resolved. Personal savings could likely be the primary income source for many millennials in retirement.
The good news is that millennials have a powerful tool at their disposal. It’s time. Millennials have a great deal of time left to save and increase their assets. If you’re behind on your savings, it’s never too early to get started. Below are a few tips to help you boost your retirement readiness:
Calculate your retirement number.
The first step in any plan is to identify your destination. You have to know where you want to go so you can develop the best path to get there. With retirement planning, your destination is usually a savings goal. Some call it the retirement number—the amount you need to save to retire comfortably.
Granted, you can’t predict every expense you’ll have in retirement. However, you can estimate how many years you may live in retirement and what your annual expenses may be. If you multiply those annual expenses by your projected number of years in retirement, you’ll get a lump-sum amount that can serve as a simple savings target.
A financial professional can help you establish a more precise target that incorporates other factors such as inflation and growth. Once you’ve established your savings goal, you can use that number to back into a regular savings plan.
Make your savings automatic.
Many people fail to save because they think they need the money for more urgent priorities. That’s especially true with millennials. After all, you have decades until retirement. Given the choice, you may feel it’s more important to use that money for student loans, car payments or other expenses.
The earlier you can start saving, however, the better off you will be. One strategy to consider is automating your savings. Set up automatic contributions from your paycheck or your checking account to your IRA or other savings vehicle. Treat savings like a mandatory bill. With savings on autopilot, you may be more inclined to stick to your plan.
Take advantage of qualified accounts.
Accounts like 401(k) plans and IRAs can be powerful retirement savings vehicles. That’s because they offer something called tax deferral. A tax-deferred account is one in which you don’t pay taxes on growth as long as the funds are in the account. That could help you grow your assets faster than you would in a similar taxable account.
These accounts offer other benefits, too. Contributions to traditional IRAs are often tax-deductible, and 401(k) contributions come out of your check pretax. That means you pay lower taxes today. Also, your employer may offer a matching contribution to your 401(k), helping you accumulate assets.
Ready to develop your retirement savings strategy? Let’s talk about it. Contact us today at Safe Retirement Strategies. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
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