How Millennials Should Save for Retirement

 In Personal Finance

Save for RetierementIf you’re a millennial, there’s a good chance that retirement is the last thing on your mind. After all, it will be at least several decades before retirement is even an option and, in the meantime, you probably have other pressing priorities. However, if you don’t begin to save for retirement now, you’ll find it is that much easier to keep putting off this important aim. Furthermore, putting money aside for retirement can also come in handy if/when the unforeseen happens and you all of a sudden need access to spare cash.

You Can Start with Just 5%

As a millennial, your paycheck may be pretty slight at the moment, which means you might think it will be impossible to save for retirement.

However, you have to appreciate the power of compounding interest. Put simply, if you can even set aside 5% of every paycheck, the interest you will gain on that between now and retirement will be substantial.

Obviously, if you can increase your contribution, that would be ideal. Right now, though, if that’s all you can afford, it’s a great place to start.

Your age means it will be a long time before you finally retire. That’s a real advantage as it also means that much longer for your money to grow—but only if you’re setting some aside right now.

Understanding IRAs

When a lot of people think of their savings, they think of 401(k)s. However, there are other options out there which you should definitely know about if you want to save for retirement—especially if you don’t already have a 401(k) through your employer.

The big reason to go with an Individual Retirement Account is because it provides a temporary tax shelter. While you pay taxes on the money when making a contribution, this means you can withdraw it for retirement without getting taxed on it in the future.

Considering the Best Choice for a Fixed Income IRA

If you’re a millennial who doesn’t sleep well while the stock market is experiencing large swings, you’ll want your IRA investments to go toward bonds, because individual bonds provide an assurance of principal return, and you have plenty of time to compound income received from the bonds.

Income you make off the interest on corporate bonds, and taxable income that originates with other taxable securities are given the same considerations that more traditional forms of income would receive.

For this reason, the most tax-efficient method for investing in bonds might be to place all of your taxable fixed-income investments into an account that serves as a tax shelter.

Furthermore, you’ll want to make sure that you regularly reinvest interest to achieve a compounding effect. Combining that with the relatively reliable return that comes from individual bonds will give you an extremely powerful option for saving money. Compounding and tax sheltering help you to see serious growth over the long run.

Just because you’re a millennial doesn’t mean it’s too early to begin saving for retirement. Start to save for retirement today and you’ll be ahead of many of your fellow millennials and in a much better position for dealing with life’s curveballs.

While there are a lot of ways you could save for retirement, as a millennial, the above guide should help you get to your goal as efficiently as possible.

Sergey Sanko
Sergey had started an IncomeClub after years of being an investment advisor for high affluent investors and managing fixed income securities. He is the lead investment advisor representative and holds a Series 65 license. Sergey earned his Executive MBA degree from Antwerp Management School.
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