Planning retirement can often be a stressful and overwhelming process. With the idea of retirement being quite far into the future for Millennials alike, it is hard to determine when it might be necessary to begin the steps of creating a financial plan. Unfortunately, the process of creating a solid retirement plan for when that time comes, is not something that was taught in the everyday school curriculum. Luckily, the process is completed over time, decades, technically; and according to the Transamerica Center for Retirement Studies survey data, “76 percent of Millennials, including retirement savers and non-savers, would like to receive more information and advice from their employers on how to achieve their retirement goals.”
Here are some important steps to take on your way to retirement.
Build a Savings Account
Opening a savings account is a great way to help prepare for the next few decades. This can be done by saving a specific lump sum of money out of a paycheck every week, or at the end of every month. Financial experts say, when first starting a savings account, aim to save about three to six months worth of your salary, approximately 25-50%.
Contribute to a 401K
Many companies offer their employees benefit plans including opening a 401K; additionally, a portion of these companies will fully or partially match what their employees are contributing to their accounts. (If your company does not match at all, it is important to contribute to your account anyway). Though sometimes tempting, it is recommended not to withdraw any money from your 401K account unless absolutely necessary. Premature withdrawal of funds from a 401K are subject to being taxed an extra 10% in addition to the regular income tax.
Focus on Eliminating Student Loan Debt
Debt accumulated from student loans is one of the largest issues Millennials have to face in their present and future lives. According to the Federal Reserve System data, as of the first quarter of 2018 Americans are now in over $1.5 Trillion of student loan debt; and with more and more students continuing to higher graduate education, this number can have a significant steady increase. There are a couple of different avenues to take a look at when preparing to pay back your loans:
- The Standard Repayment Plan, is defaulted for all students paying back their loans. It is a fixed payment over the course of ten years based off of your loan amount. This may require a higher monthly payment, but a minimal interest rate, making the long term effect better.
- Income driven repayment plans can also be set up for students whose salary isn’t enough to cover the Standard Repayment Plans monthly cost. These monthly payments will be more based off of the students income, have an extended term (longer than ten years), and a higher interest rate.
Try to Have the Equivalent of Your Salary Saved
After your starter savings account accumulates some traction, and you have maybe reached the “three to six months” of salary saved goal, the next step is to double it, at least. For the twenty-something Millennials out there, financial experts recommend having at least a full years worth of salary saved by the time you’re thirty; this will give you a great start to the next stages in life like buying a home or having children.
Increase Retirement Contributions
Over the next few decades of working before retirement, you’ll want to consider increasing your contributions to retirement funds. This can mean stashing away any extra money you can, or contributing approximately 8-15% of your salary into your retirement funds. You’ll want to be contributing the max amount to company provided retirement funds, like a 401K, and continuing to increase contributions to separate retirement funds that you opened on your own.
Preparing for retirement can be a long and complex process; and though it may seem far out into the future, it is in best practices to start your preparations as soon as possible.
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