A Millennial’s Guide to Retirement
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“How much should I save for retirement?”
Is the question we all ask and it’s not one that is easily answered.
Now, you may have wanted us to say __% of each paycheck should be enough. But, the truth is, no one actually knows the answer to this question.
Don’t throw in the towel just yet though. Let’s break it down.
Why can’t we tell you a blanket amount that should cover your retirement?
- We don’t know how the stock markets will do between now and your retirement. We could have 30 great years, or we could have more than normal ups and downs, leading to uncertainty.
- We don’t know what the cost of living will be when you retire.
- We don’t know how much Social Security will be paying out during your retirement years.
- We don’t know the physical and medical care you will need in your golden years.
There are many more factors, but the main thing is that uncertainty in the future means there is not a golden number. It’s different for every single person!
You may be thinking, “Well that’s a terrible answer, I already knew that life was uncertain!” But, just because there’s not a golden number, doesn’t mean you shouldn’t start working towards a retirement goal. In fact, it’s the very reason you should start!
But, where do you begin?
- Start with what your current job offers you. Does your employer offer to match your retirement contributions? Some employers will offer an IRA and others will offer a 401k option. Either way, the first thing you want to do is make sure you’re not leaving money on the table. If your employer offers a match, you want to at least put in enough to receive that portion. If they offer you 3% match, then if you put in 3% of your income, so will they. Look at it as a part of your salary. It’s free money with a small stipulation.
- Next, pay down debt. No, this isn’t putting money in your retirement. But, the faster you can pay off these debts, the more you’ll have to put toward retirement and building assets instead of paying off assets. The goal is to have 0 debt when you enter retirement, if not many years before.
- Does your employer offer an HSA with their insurance plan? If you don’t use all of this money, it continues to accumulate year after year. Starting in 2020, the new maximum contribution into an HSA is $3,550 and families can put in $7,100 a year. Basically, a dollar in an HSA is worth a little more because no taxes were taken out of it.
- Now, diversify. Having your one retirement account isn’t enough. When you have a little more expendable income, think about putting it into a Roth IRA. The reason? This is money that’s already been taxed. So, when you get into your 60s and decide to retire, you won’t have to pay any taxes on the amount you’ve accumulated on this account. You can actually talk with us about opening a Roth IRA. Read more about it here. There are other ways to diversify, such as stocks, CDs, bonds and traditional high interest savings accounts.
We highly recommend talking to a financial professional. You can come in to see us and talk about IRA options.
Or, make an appointment with a local financial advisor. If you meet with a financial advisor you’ll want to take a list of your questions, your current assets and debts so you can start building a plan that will help you meet your goals.
As you set these goals though, remember you need to live right now, too. So, don’t over save and lose sight of the here and now. Begin planning as early as you’re able to for the day when work is no longer an option.