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 cause retirement savings to take a back seat. In fact, research from National Institute on Retirement Security says that 66 percent of millennials haven’t saved any money for retirement, and 66 percent haven’t started saving.1 That attitude, however, can make it more difficult to save enough to have a secure retirement later.
The main thing that millennials sacrifice if they don’t start saving now is time. Time in the market can help savings grow through compounding in the long term. For example, saving $50 each month in a retirement account earning 6.5 percent 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 can grow tax-free, 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 percent of your salary, you should start by contributing that much.
Otherwise, you’re leaving money on the table. Your employer match instantly increases your contribution and can help your money grow faster.
Don’t worry if you’re not a savvy investor. Many retirement plans 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 that they may not stay with that employer. These days, very few people stay with a single employer for their entire career, and they can roll their retirement plan funds into a new employer’s plan or into an IRA if they leave their job.