Retirement. That golden ticket to relaxation and a life of ease. Only for millennials, retirement is one of the most uncertain retirements of any previous generation over the last 100 years.
The millennial generation has had to face wage stagnation starting around the year 2000, leading to lower wages. Because of lower wages in conjunction with a higher costs for goods and housing, it is more difficult for this generation to save money that it was for previous generations. The millennial generation also faces unprecedented amounts of debt, largely due to student loans.
The stock market crash of 2000 and the recession of 2008 have also made the job market insecure for many millennials, with the majority showing uncertainty with their retirement savings. Studies have shown that most millennials do not have retirement savings accounts or do not have the eligibility to utilize one. This makes saving for retirement especially challenging.
Fortunately, there are some strategies to use for millennials’ retirement savings, even if they are not eligible for a retirement account through a full-time employer.
Use these methods to build millennials’ retirement savings
1. Contribute to a private retirement savings account: This may be the most common option for millennials. Individual retirement accounts, or IRAs, and 401(k) accounts are also primary options.
The best way to handle funding your own retirement is to determine how much money you have left each month after paying expenses and contributing a part of that to your retirement savings. Even if the monthly contributions are low, it will help accumulate retirement savings over the long term.
2. Know the benefits of an employer plan: Some eligible millennials may have the option of getting a 401(k), 403(b), or some other type of plan for retirement savings through full-time employment. Get to know all about the options this provides, including any matching contributions that the company will offer. It is also essential to know what kind of plan it is, if there are investment opportunities through the plan, when contributions will begin, and when you will become vested.
3. Consider a Roth Ira: A Roth is a specific kind of retirement investment that handles taxes differently. Roth contributions are made on an after-tax basis. This means that taxes are taken out before the contribution is made. After retirement, the payments from the Roth are available tax-free. Contributors of a Roth can begin withdrawing from the account at age 59 ½ if they have had the Roth account for a minimum of five years.
A Roth account has benefits for those in lower tax brackets in their younger years. This is so because sometimes those individuals will be in a higher tax bracket by the time retirement age comes around. Being in a higher tax bracket with a savings account designed with a pre-tax basis would lead to higher retirement payments.
4. Tackle any debt you have: Millennials are known as a generation with significant amounts of debt, much of which is due to student loans. Paying down debt as soon as possible will help you save for retirement, as well. One way to do this is by determining monthly expenses, establishing an emergency fund, and then committing a certain percentage of the remaining income to pay off debt. You can also increase that amount anytime you receive a raise or commissions.
5. Get creative with the money you do have: Millennials are well acquainted with the idea of “side hustles.” Some millennials will take on extra jobs or gigs to make more money for retirement savings. That’s one option to consider. Another option, if you’re already planning on buying a home, involves purchasing a multi-family residence to rent out part of it and make rental income. This is especially for handy if you can do some house maintenance on your own accord.
Hiring a certified financial planner is another option. Although some may think this would be a costly investment, you could do it as a one-time opportunity so you would not have to consistently pay a financial planner. Going this route could open your eyes to ways of achieving your financial goals over time.
The final recommendation for millennials’ retirement, or for anyone, is to budget and live within your means. Avoid a lifestyle that is too costly and will lead you into debt. Determine how you spend your money each month and set aside some of that money for your retirement savings account. You will be happy you did so in 25 or 30 years.
Are you a millennial who is already saving for retirement? What kind of approach have you taken?