Every generation has to plan for retirement, each having different
obstacles to overcome. For Millennials, those born between 1981
and 1996, there are multiple challenges. Remaining focused on
a retirement that could be more than 40 years away is tough,
particularly while your hard earned paycheck is competing with
rent, student loans, a car payment, and a social life. The message
here is: keep your eye on the prize and follow these tips.
You entered the workforce during the “lost decade” with the
2000 - 2002 stock market downturn and the 2008 financial
collapse. You probably heard parents, friends and colleagues
speak in fear about the stock market. But looking ahead,
your long time horizon affords you the ability to invest more
aggressively in stocks which likely will provide for higher longterm
returns and the time to ride out market declines. Despite
what you may have heard, stock markets work.
The decades ahead of you can be your greatest advantage due
to time and the compounding of your money. Compounding is
essentially earnings on your earnings due to reinvesting. Here’s
an example: at age 25, you begin investing $3,000 per year. At
age 65, $120,000 would have been invested. If we assume a 6%
average annual return, you would have accumulated a total of
$464,286. Alternatively, if you wait until age 35 to begin investing
that $3,000 annually, you would have invested $90,000 and it
would have grown to $237,175. That’s a difference of nearly a
quarter million dollars!
Start now with whatever amount you can afford and invest
with a tilt toward stocks. A good target in your early twenties
is to save 10%-15% of your annual salary. Each year when you
receive a raise, increase your contribution by 1% of salary until
you reach the target.
We all hear the headlines about the student loan debt crisis.
Millennials have borrowed more to attend college than previous
generations. While you must pay this debt on time, find a balance
between saving for retirement and making the payments. As your
salary increases, increase your debt payments and retirement
savings. Remember, you were able to borrow for college, but you
cannot borrow to fund your retirement goals.
If your employer offers a retirement plan, such as a 401(k), take
advantage of this easy way to save. Initially, contribute enough
to obtain the company match. That’s free money! If you have a
Roth 401(k) option, consider contributing all or a portion to the
Roth. Unlike contributions
to a traditional 401(k) plan,
Roth contributions are made
after-tax. Such investments,
once in a Roth account,
can grow and are shielded
from income taxes forever
– as long as certain rules
are followed. The goal for
retirement is to have a mix of
tax free, tax deferred, and taxable buckets.
Millennials are known to change jobs often. You should consider
the pros and cons of keeping your money in your current
employer plan, rolling it into your new employer plan if allowed,
or rolling it over into the appropriate traditional or Roth IRA.
What you should not do is take the cash!
Having a Roth IRA outside of your Employer Plan is a good idea.
It will allow for a tax free bucket of money if your employer
doesn’t offer the Roth 401(k) option. In addition, because there
is typically a timeframe that has to be met before you are able
to contribute to an Employer Plan, it provides you the ability to
still save for retirement.
Millennials should save until they have at least 6-12 months'
worth of expenses. This cash reserve will get you through the
unexpected times if, say, you lose your job or have a medical
emergency. Research shows that Millennials are more likely to
borrow against their 401(k)s in an emergency when they should
be accessing an emergency fund first. Set up a savings account
that you don’t have easy access to for this purpose and have
10% of your paycheck automatically deposited until you reach
your 6-12 months' goal.
It can be overwhelming to navigate your financial future on your
own. How much will you need in retirement? Can you buy a
home? Will your student loan debt ever get paid off? With sound
financial planning, you can overcome all these challenges.
Our experienced team is here to help you navigate the next steps on your path to retirement. Please feel free to contact us with any questions you have at 941-366-7222.
This material is provided for general information purposes only. Canandaigua National Trust Company of Florida is an affiliate of Canandaigua National Bank & Trust. Investments are not FDIC insured, not bank deposits, not obligations of, or guaranteed by, Canandaigua National Bank & Trust or any of its affiliates, including Canandaigua National Trust Company of Florida. Investments are subject to investment risks, including possible loss of principal amount invested. Past performance is not indicative of future investment results. Before making any investment decision, please contact your legal, tax or financial advisor. Investments and services may be offered through affiliate companies.