Why Millennials Have to Begin Roth IRA Contributions Today

 In Personal Finance

roth ira contributions

We all know that it’s important to save for retirement. At some point, we’ll either become too old to work or we’ll reach an age where other things become more important. It’s then that having a sufficient nest egg will be vital.

While it’s important that everyone set aside money for this purpose, this is especially true for Millennials. With a retirement vehicle as reliable as a Roth IRA, it is essential that Millennials begin making contributions right away.

Download Free E-Book “The 20% Rule: How You Can Avoid A Retirement Collapse”

Most Millennials Aren’t Saving…at All

I’ve talked before about how Millennials do a poor job of saving money. This isn’t completely their fault, though. For one thing, they have more student debt bogging them down than any generation in history.

This massive amount of debt affects a number of areas of their lives, not the least of which are Roth IRA contributions.Plenty of Millennials simply don’t plan on retiring anymore either.

They see the writing on the wall – decreasing returns on investments, longer life spans, less job security – and wholeheartedly believe that there is no point in making Roth IRA contributions because that money is better spent on demands in the present.

This is all the more reason that Millennials need to snap out of it and begin making Roth IRA contributions right away.

When you factor in that most people underestimate how much they need for retirement, it should become all the more clear that there is no time like the present to begin making Roth IRA contributions.

Regular Roth IRA Contributions Will Help with Stress

At the same time, despite the fact that most Millennials see little hope of ever retiring, saving enough is a main source of their stress.

In fact, 38% named this above other common instigators like:

  • Monthly expenses (29%)
  • Credit card debt (26%)
  • Student loans (24%)

No one’s life is made better by having too much stress. It can even lead people to make very poor decisions. Regular Roth IRA contributions won’t just make a big difference when someone retires; they can actually become a factor in the decades leading up to that too.

Keep in mind, too, that Millennials are quite risk-averse. This further helps explain why they don’t like the idea of not knowing what to expect from retirement.

Fortunately, Roth IRAs are about as dependable as investment vehicles get.

The Sooner Roth IRA Contributions Start, the More Money Will Be Saved

This is probably fairly obvious, but it’s still worth pointing out here. In short, the sooner someone begins making Roth IRA contributions, the more money will be waiting for them upon their retirement.

It may help to look at an example. If a Millennial began making monthly Roth IRA contributions of $100 beginning when they graduate college at 22, by the time they are 30, they’d have $11,876.96 (assuming a 6% annual investment return and 3% rate of inflation).

If all they ever made in Roth IRA contributions was that same $100 every month until they retired at 65, they’d be sitting on $225,009.09.

Hopefully, this makes it clear that it literally pays to begin using a Roth IRA to save for retirement ASAP. The earlier you do, the less you have to contribute on a monthly basis to hit your retirement goals.

For most people, $100 a month is extremely realistic, but that amount could also be increased as the years go on and the person receives promotions, etc.

For what it’s worth, I recommend setting aside 20% of your income for retirement. If you were to put that into Roth IRA contributions, it wouldn’t be long before you already had a very impressive nest egg.

Download Free E-Book “The 20% Rule: How You Can Avoid A Retirement Collapse”

The Longer They Wait, the More Expensive It Will Be

Another thing to take away from the math we did above is that the longer a Millennial puts off beginning regular Roth IRA contributions, the more they’re going to have to set aside to enjoy a comfortable retirement.

That much may be obvious, but there’s another factor at play here. Aside from the student debt we brought up earlier, most Millennials are more financially free now than they’ll ever be (at least until retirement).

The longer they wait on making Roth IRA contributions, the more likely they are to become hampered by other expenses like:

  • A mortgage
  • New car payments
  • Medical expenses associated with aging
  • Children (e.g. hospital fees, paying for food, clothes, education, etc.)

Proper preparation can ensure that those fees don’t get in the way of saving for retirement. Nonetheless, by beginning Roth IRA contributions now, most Millennials should be able to put fairly large amounts aside.

The Future Is Unclear

It’s no secret that social security may not persist for very long. We’re only just beginning to see what happens as the Baby Boomers retire en masse. There are a number of other economic reasons to not be too confident in the idea that social security is going to be around for Millennials when they retire.

This is yet another reason why it’s so important for them to begin Roth IRA contributions immediately. You can’t simply take for granted that this program will be around to help. The same goes for market conditions.

More and more, financial analysts and economists are warning about another recession on the horizon. If it were to happen, it might not have lingering effects that reach all the way into the future to the time when Millennials retire.

However, it is indicative of what is possible. If Millennials should have learned anything during the Great Recession, it’s that they can’t take a healthy economy for granted.

Likewise, when it comes time to begin thinking about retirement, having a Roth IRA will be one of the best defenses possible against the possibility of another economic downturn.

If you’re a Millennial, the above should make it clear that you can’t risk putting off Roth IRA contributions any longer. Despite various obstacles in the way, you can still enjoy a comfortable retirement if you begin setting money aside today.

retirement accounts 401K IRA

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.
Recommended Posts