How to start planning for retirement as a Millennial
Hardly a day goes by without a new article or newscast announcing the latest market or trend Millennials are responsible for destroying. Whether they’re ruining the housing market by spending too much money on avocado toast or taking down department stores due to their love of online shopping, Millennials are no stranger to facing intense scrutiny. And while their “frivolous spending habits” may predict that the generation will face serious future challenges when it comes to reaching retirement, recent statistics from the Transamerica Center for Retirement Studies show that 72 percent of Millennials have already started saving for retirement—and many started doing so at the ripe age of 22 .
This is good news, as Millennials may be looking down the barrel of a tougher retirement than past generations—thanks in part to potentially reduced Social Security and Medicare benefits, higher taxes and inflation rates, larger amounts of debt due to skyrocketing higher education costs, fewer traditional pension plans, lower market returns on investments, and rising life expectancies and health care costs.
Luckily, time is on the generation’s side. Even the oldest Millennials have yet to reach age 40—meaning the generation still has decades to save before arriving at full retirement age. And starting early, as Millennials have, can have a dramatic impact on their retirement readiness. Not only will they be able to save more over the course of a lifetime, but that powerful force known as compound interest will have more time to do what it does best: grow retirement nest eggs.
All that said, there a few ways Millennials can further prepare for retirement—even if it is decades down the road.
Easy ways Millennials can begin preparing for retirement
· Advance financial literacy rates
Although Millennials are on the right track when it comes to saving for retirement early on, 72 percent admit that they don’t know as much about investing as they should, while another 75 percent say they would like more education and information on how to reach retirement goals . And according to the Aegon Center for Longevity and Retirement, low financial literacy can translate into failure to engage in any sort of financial planning . What’s more—the study reports that without sufficient levels of financial literacy, it can be impossible to formulate good retirement plans or even know what questions to ask an employer or advisor when looking for financial advice.
· Prepare a written retirement plan
According again to the Aegon Center for Longevity and Retirement, workers who have a written strategy for retirement are significantly more likely to turn their good intentions into action . And while Millennials may not have the experience or knowledge base needed to formulate a written retirement strategy, a huge percentage are looking for professional financial education and advice—meaning a financial advisor may be just the right person to help. In fact, when the NFCC asked workers who they would turn to for guidance on financial and money management issues, the top response overwhelmingly was a financial professional, such as a CPA or financial planner .
· Follow a budget
Millennials get a bad rap when it comes to saving money; not everyone falls trap to that stereotypical “Treat Yourself” mentality the generation is accused of having. However, preparing a budget and sticking to it is an easy way for Millennials to keep track of their expenses and grow their retirement savings. Skip out on that cold brew from the local coffeehouse and instead opt for a homemade cup of coffee. Or ditch cable in favor of cheaper alternatives like Netflix or Hulu. Then watch that savings account begin to grow.
Despite the constant barrage of negative press surrounding Millennials and how they handle their finances, the generation is saving for retirement both earlier and more aggressively than others before it . And while it may be hard to ignore some of the more eye-roll-worthy reports blaming Millennials for yet another dying market, utilizing the above tips may just help put Millennials one step closer to financial freedom and overall retirement readiness.