It’s Never Too Early or Late: Essential Retirement Planning for “Gen Y”

By on September 7, 2018

Like most Gen Y college graduates or Millennials or non graduates who are working hard, saving for retirement is not a top financial priority. Now that you’re earning a steady paycheck, living expenses, car payments, mortgages, marriages, families and, of course, student loans must be addressed; however, saving for retirement should also be a part of your financial plans.

If you start saving now, you can achieve financial freedom and maintain your standard of living all the way through your retirement years. Save $2,500 a year ($50 per week) for retirement start at age 25 and earn a 10 percent return within a diversified portfolio, by the time you’re 65 years of age you could have close to a million dollars.

Start saving for retirement early and you could build enough wealth to manage household budgets, fun and retirement.

If your an older Millennial, just increase your yearly contribution to reach your retirement goals.

Gen Y: Start Saving for Retirement in 5 Easy Steps

When you are young, retirement can seem far off in the distant future, but building a large enough retirement nest-egg will be much more difficult as you get older. Gen Y individuals can build a strong financial future if they get a head start on retirement planning. You don’t want to have to make up for lost time–put a little away for retirement now so you can reach long-term goals and survive the rising cost of living. Start saving earlier, save more, generate higher investment returns, retire later and spend less in retirement.

Here are five easy steps for Gen Y Millennials to establish and/or stay on track with a retirement savings plan.

1. Get a Grasp on How Much You Will Need for Retirement

Retirement is expensive. Conventional opinions estimates an individual needs at least seventy percent of their pre-retirement income to maintain the same standard of living once they’ve left the workforce. Now that you are responsible for your own life, it’s time to try a free online retirement calculator to get an idea of how much you’ll need to save.

The amount may seem like a lot, however, if you start saving now, you can reap the rewards of time and interest. Unfortunately, older Gen Y Millennials may find they need to start kicking in a bit more towards savings to reach their retirement goals while simultaneously paying off debts and daily expenses.

2. Begin Contributing to a Retirement Fund – 401k, IRA, etc.– Immediately

Find out if your employer offers retirement benefits. One of the easiest ways to save for retirement is to enroll in automated contributions to your work or comparable retirement fund. Deduct a small amount directly from each paycheck, before taxes – this may help lower your tax burden at the end of the year.

Ask your employer if they offer contribution matching to help accelerate your savings. And keep up with inflation and pay increases by setting your contributions to auto-escalate a small percentage each year.

If your employer does not offer retirement benefits or you are self-employed, a traditional or Roth IRA are both viable retirement options. Each IRA has its own set of advantages, such as the tax deductible feature of the simple IRA and the Roth IRA may be ideal for those who are self-employed. Learn more about Simple IRA’s, SEP IRA’s and the Roth IRA so you can choose a retirement fund, from which type(s) of retirement fund(s), that will benefit your bottom line.

3. Investigate Alternative Retirement Vehicles

There are other ways to save for retirement besides pensions and IRAs. Hedge against risk of value loss to your pension by diversifying your investments with some other saving vehicles: stock investments, bonds, annuities and insurance. For some Gen Y Millennials these vehicles may seem out of reach, but done carefully, you can earn a little extra to reach your retirement goals.

Stocks and Bonds
The stock market may be considered a high risk investment, but for Gen Y there is time to take risks for high payouts or time to recuperate. Diversified your investments evenly between stocks and bonds to mitigate risk of losing all of your investment.This will off set small returns with little risk of loss, and stocks (managed carefully) can bring strong returns. And consider investing in mutual funds to buy a diversified array of stocks tailored to your age and retirement goals.

Annuities
Annuities are designed grow funds from an individual in an account which will pay out a stream of payments to the individual at a later point in time (usually retirement). This ensures a steady income for an individual during retirement. An annuity may be a great option for Gen Y earners who have reached the maximum limit of their annual 401k or IRA contributions.

Insurance
Aside from Hybrid Annuity insurance riders where buyers can use fixed and variable annuity components to allocate retirement funds, Gen Y individuals with dependents (spouses, children, disabled family member) may want to learn more about cash value life insurance which secures death benefits for their loved ones while simultaneously investing funds which can be drawn upon for loans, college tuition and retirement.

4. Budget, Save and Avoid Debt

Now that they are financially independent, Gen Y millennials need to separate out their wants from needs. It’s time to make and follow a budget, save for other major purchases and avoid accumulating more debt. There may be purchases you cannot avoid, like buying a new car, but make choices that make it easier to get reach your financial goals.

Create a budget that will regulate your spending in different categories, including food, mortgage payments or rent, gas, utilities, entertainment, etc.. Find small ways to save money with little lifestyle changes, like making coffee or lunch at home instead of buying it everyday. And moderate your credit card debt to keep a strong FICO score.

There are many ways to manage debt, but you only have one shot at retirement. Take a balance approach to paying off student loans, carrying debt and saving for retirement. It may seem impossible, but a secure financial safety net is just as important as becoming debt free.

Saving for Retirement and Paying Off Student Loans
Gen Y Millennials should be saving for retirement while paying down student loan debt. Some debts don’t have to be paid off as fast as possible (this strategy may also come up with paying off your mortgage). If you are concerned about reducing payments or paying down high interest loans, there may be options for restructuring or reducing your student loans.

Some Gen Y graduates may opt to make larger payments each month to shorten the life of the loan. Many are eligible for student loan forgiveness programs yet fail to inquire more about receiving such benefits. Many more are eligible for extended repayment plans (smaller payments over longer term). And others are eligible for income-based repayment plans which allows them to lower their payments.

If you are extended an opportunity to reduce your student loan payments, roll the money you save each month (or year) into your retirement fund.

5. Get Professional Help with Retirement Planning

If you are a Gen Y wage earner, you don’t have to be a financial expert or go it alone to reach your retirement goals. Consider speaking with a skilled retirement planner or financial advisor to build a strong financial safety net which can catch you when you’re ready to relax.

Retirement planning does not have to be frightening or overwhelming if you start saving early. Take hold of your financial future and show the world that Gen Y Millennials are fiscally responsible and savvy.

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