5 Simple Things That Millennials Must Do to Save for Retirement
If you’re a Millennial, thinking about boring things such how to save for retirement may seem to make little sense.
After all, you might be working hard just to find steady work at the moment. Still, as you’ve probably been told countless times before, it’s never too early to begin your retirement saving efforts.
However, you can’t do so recklessly, or you could end up doing more harm than good.
That’s why I’ve compiled these five steps every Millennial should be taking to begin retirement saving.
Start putting 20% aside right away
This is one of the easiest things you can do and, therefore, something everyone should begin doing right now. Regardless of where you are in your retirement saving journey, if you’re not putting aside 20% of your annual salary, start doing this ASAP.
In fact, if possible, I’d recommend saving as much as 20%.
Use 401(k) and IRAs to save for retirement
Obviously, one of the best places to start with this retirement saving tip is your employer’s 401(k) plan or whatever equivalent they may offer. Aside from the fact that a 401(k) will give you some nice advantages where taxes are concerned, a lot of employers will match your contributions too—that’s free money!
If you don’t have a 401(k) from your employer, don’t worry. An IRA or Roth IRA will do the trick. Just be sure you always contribute the maximum amount for people under 50. Right now, it’s $5,500 a year. Investing in individual bonds from your tax-sheltered accounts is the best option because income from bonds is taxed as ordinary income.
Still have funds left over? Then put them into tax-efficient and low-cost options like stock index funds held in a taxable account.
Finally, do yourself a favor and sign up for auto-deductions from your paycheck, so you don’t have to do any of the budgeting yourself. Retirement saving doesn’t have to require loads of time and self-discipline if you leverage modern tech.
Pick a simple asset allocation
Speaking of simplicity, create a basic portfolio of diverse stocks and bonds that don’t push your tolerance for risk. For most of you, 50% should be kept in individual bonds; another 50% should be in low-cost stock funds.
Then, once you have your mix figured out and financed, leave it alone. At most, once a year, address any changes to their proportions if necessary. That’s it.
Use “Robo- advisors”. Relax!
Open an account with one of the “Robo-Advisors”and keep fees as low as possible. “Set it and forget.” Please don’t become one of those people who are constantly checking their account balance or messing with their retirement saving strategy.
Provided you followed the four steps above, you have better things to focus on as your career and family. The whole reason to have auto-deductions and “robo-advisor” accounts is that you can go on autopilot.
Again, I don’t think you should check in more than once a year—twice, at most. Just confirm that your efforts are taking you in the right direction. Use a reliable retirement calculator to ensure you’re on the right track. If you find that, year after year, the likelihood that you’ll struggle to fund your retirement is going up, you obviously need to rethink your plan and make necessary adjustments.
Being a Millennial, though, you have plenty of time to make up for a couple bad years early on; so don’t fret if you have setbacks from time to time.
Although you’re young now and decades away from retirement, don’t make the mistake of thinking you should put off saving for it. Hopefully, retirement saving doesn’t need to take a herculean effort. Start by setting aside 15% of each paycheck. Then, it’s just a matter of adjusting things once a year to ensure you’re staying on target.