Millennials: Start Saving for Your Retirement Today!

A jar with money in it. The jar is labeled "retirement."

Photo credit: Tax Credits at Flickr Creative Commons.

Millennials are in an ideal position to get started on retirement planning because the monies they set aside and invest now will grow over time. But starting now is the key.

Starting a savings plan as early as possible will enable Millennials to put aside small amounts of money each month. The smaller amounts are easier to budget for, and the longer the money is invested, the more time it has to grow into enough for a comfortable retirement. Many experts believe that the amount of money needed to retire is in the range of approximately $1 million.

Unfortunately, many Millennials postpone setting aside savings because many already have financial burdens like student loans or credit card debt. Additionally, they often lack access to 401(k) or similar retirement plans if they work seasonal jobs, are employed part-time, are self-employed, or work at small businesses that don’t offer 401(k) options.

In fact, many Millennials haven’t begun saving for retirement yet. A Wells Fargo survey identified that a full 41% of Millennials have not yet started saving for retirement. Some believe it’s fair to assume the percentage of non-savers would be even higher if they included unemployed Millennials in their survey.

There are a variety of reasons Millennials are holding out when it comes to planning ahead. For example, some have just started working or have irregular incomes, so emergency funds are more critical than retirement funds at the moment.

Women find it especially difficult to find the extra money to put aside due to the gender pay gap. In the Wells Fargo survey, women reported median personal income of $28,800 versus the $39,100 earned by men. It’s not surprising then that more women than men (54% to 43%) said they’re living paycheck-to-paycheck.

And the feeling of scarcity isn’t just gender-based: according to the survey, 64% of the Millennials said they would never accumulate $1 million in savings over their lifetime (though it’s worth noting that 73% of the total women surveyed felt this way).

There are a few steps Millennials can take to invest wisely and make the most of their 401(k)s. First, the recent Mobile Millennials survey from Retirement Clearinghouse found that, when changing jobs, 34% of Millennials cashed out of their 401(k)s at least once. Many experts suggest, however, that a 401(k) should be your last resort to cash out on for any reason. Better to find that cash you need elsewhere.

The Wells Fargo survey also reported that 44% who’ve started saving are only putting away 1-5% of their income—quite a small amount when considering your financial future. Wells Fargo advised that a target of 10% would be a better goal, if possible.

Educating Millennials on their finances is another important step. In the Wells Fargo survey, 35% of Millennials said they didn’t know enough about IRAs to consider them. Since IRAs and 401(k)s have nuances that only a financial advisor can really explain, it’s best to consult one in order to best understand the options for each individual.

Millennials come from a variety of financial backgrounds, and each has their own unique situation when it comes to saving for the future. Still, it’s important across the board for Millennials—and for every generation—to take a good, long look at best practices to ensure that retirement is something everyone can look forward to—not dread.

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