A recent study from the Transamerica Center for Retirement Studies found that the median retirement savings for millennials is $31,000.1 That amount may be a good start, especially if you’re just starting your career. However, given the challenges millennials will face in retirement, you’ll likely have to save a substantial amount over the remainder of your working years.
Millennials will face a number of difficult challenges. The first is simply life expectancy. People are living longer than ever, and life expectancy will only continue to increase as medical treatments evolve and advance. If you retire at traditional retirement age, it’s possible that you could live in retirement for 30 or even 40 years.
Another challenge is the fact that millennials have to shoulder much of the burden for funding their retirement. Previous generations could rely on employer pensions, but many companies have eliminated pensions from their benefit menu. Social Security benefits will also be at risk for future generations if the program’s funding issues aren’t resolved. This all means that many millennials will have to rely on their personal savings to fund retirement.
The good news is that time is a powerful weapon. You have a great deal of time left to save and increase your assets. It’s never too early to get started. Below are a few tips to help you boost your retirement savings:
Estimate your retirement number.
The first step in any plan is to identify your desired outcome. You have to know where you want to end up before you can develop a strategy. When it comes to retirement planning, your destination is usually a savings target or retirement number. That’s the amount you need to save to retire comfortably.
You can’t predict the future, so it may be difficult to estimate every expense you’ll face in retirement. However, you can use your current living expenses and inflation to project what your cost of living may be in the future. You can also estimate how many years you may live in retirement. If you multiply those annual expenses by your projected number of years in retirement, you’ll get a lump-sum amount that can serve as a simple savings target.
A financial professional can help you establish a more precise target that incorporates other factors such as inflation and growth. Once you’ve established your savings goal, you can use that number to back into a regular savings plan.
Automate your savings.
Many people fail to save because they choose to use their money on other expenses. If you have decades until retirement, you may not feel like saving is an urgent priority. Given the choice, you may feel it’s more important to use that money for student loans, car payments or other expenses.
The earlier you start, however, the easier it will be to reach your goal. Even saving a modest amount can have a big impact. One helpful tip is to automate your savings. Set up automatic transfers from your paycheck or checking account to an IRA. With your savings on autopilot, you eliminate the option to spend that money on other expenses.
Maximize contributions to qualified accounts.
Accounts such as 401(k) plans and IRAs can be powerful retirement savings tools. They offer something called tax deferral, which means you don’t pay taxes on growth as long as the funds are in the account. That could help you increase your assets faster than you would in a similar taxable account.
These accounts offer a number of other benefits as well. Contributions to traditional IRAs are often tax-deductible, and 401(k) contributions come out of your check pretax. That means you pay lower taxes today. Also, your employer may offer a matching contribution to your 401(k), helping you accumulate assets.
Ready to develop your retirement savings strategy? Let’s talk about it. Contact us today at Stoll and Basler Financial Services. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
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