Due to the differences in age and often income, millennials need to plan for retirement in a different way than older generations. Millennials are often early in their careers and may sometimes choose to focus on career growth and neglect retirement. Here are the top 5 millennial retirement strategies to build your path to financial freedom.
Top 5 Millennial Retirement Strategies to Achieve Financial Freedom
Retirement assets are paramount to financial freedom. Having an effective retirement strategy in place is a core piece to get there. Without getting involved in your retirement strategies early and often, your chances at achieving financial freedom diminish by the day.
So get started now! What are you waiting for? Millennials are often criticized for their lack of savings. If you need to know how to plan, here is a retirement readiness checklist to help you see what goals you need to achieve in advance.
Data suggests that millennials and retirement savings are like oil and water. Check out this piece from Shannon Schuyler at PwC on millennials inadequate knowledge on financial literacy. So how can millennials save for retirement and bust the critics? Let’s change the public’s opinion. Follow these top 5 millennial retirement strategies and you will be in good shape.
Retirement without a Financial Planner for Millennials
Do you need a financial planner to help? Here’s how to find the right financial planner for millennials. Consider finding a financial planner for millenials who will walk you through your financial planning and setting of financial goals. The financial planner will help you to make sound money plans and will even help you understand different aspects of your financial situation.
If you want to do your own personal financial planning, check out our 19 different personal financial ratios to use to evaluate your financial situation.
This post will contain the best retirement strategies to consider without the need for a financial planner. I suggest that you obtain a free consultation from a financial planner at least once to ensure you are on the right track to financial freedom. From there you can use retirement strategies identified below to make the best decisions for your financial future.
Our wealth management resources can help you become financially free.
What are the top 5 millennial retirement strategies?
Retirement strategies are tough to come by. They often require careful planning and are oftentimes specific to each person’s financial situation. Here are the top 5 millennial retirement strategies for you to follow. This is how millennials should save money for retirement.
First strategy to consider for millennial retirement: Understand how much to save and how to pay down debt
Millennials need to set an emergency savings account aside. In this account, funds should be put in place just in case they lose their jobs for a period of time. An emergency savings account makes sure that millennials do not have to take money out of their retirement savings account.
In addition to setting up an emergency savings account, millennials also need to lower their debt. The ideal way to lower debt is to start off by paying debts with the highest interest rates. However, some recommend paying off debts of lower value since it gives a feeling of satisfaction, psychologically, when some debts are completely eliminated.
Eliminating debt and saving for emergencies are useful since saving for retirement while having so much debt may prove futile in the long run. Debts are often penalized if not paid in time and may end up eating into savings set aside for retirement if not properly manages.
If you need to set up a strategy, here are some creative ways to pay off your student loans.
A great place to identify all of your debt accounts is by using Credit Sesame. This will allow you to see your credit score for completely free! From there, you will be able to monitor your score over time. Credit Sesame also gives you a free $50,000 identity theft insurance protection.
2. Take advantage of 401K plans as much as possible
401(k) plans are retirement savings plan sponsored by most employers. The advantage of these plans is that it lets someone save and invest before the amount is taxed. For millennials, some of the things to consider include employer matching. Millennials need to familiarize themselves with this concept fully in order to get the most out of their 401(k) plans. Analyze and optimize your 401(k) with Blooom, a free way to get a checkup on your 401(k).
Read our Blooom review to learn more about how it works.
Matching means that if you put a percentage of your income into the 401(k) account, your employer also puts the same amount. The most popular plan is 3% of your salary. In a 3% matching plan, you put 3% of your salary into a 401(k) account and your employer puts the same amount. In this plan, you may put more than 3% yourself. However, your employer will not match beyond the 3%.
The two types of 401(k) are the traditional 401(k) and Roth 401(k). The traditional 401(k) is ideal for millennials with higher incomes since they have better tax rules. In addition, they do not allow one to withdraw the amount before reaching the age of 59.5 years. In case one decides to withdraw, a penalty of 10% is imposed in addition to the normal tax rules. The traditional 401(k) is also ideal for millennials with enough money in their emergency accounts.
The Roth 401(k) offers more flexibility, as one can access their money at any time as long as they have had the account for at least 5 years. However, the contributions are usually made on money that has already been taxed. The Roth 401(k) is ideal for millennials who have lower incomes due to the flexibility it offers.
Ensure you aren’t paying too much in fees by using the best 401(k) fee checkers.
Here are the exact steps I took to save money in my Alerus 401(k).
3. Alternative Retirement Savings Plans (e.g SEP IRA plans and Traditional IRA plans)
Traditional IRA (Individual retirement accounts) are ideal for millennials who do not wish to pay for their retirements from their payrolls and instead choose to pay from their pockets. The traditional IRA accounts have some advantages when it comes to taxes. For example, if you are under a certain income limit, you can claim a deduction at the end of the year. The reason a millennial can claim a deduction at the end of the year is that money deposited into traditional IRA accounts is usually already taxed.
SEP (Simplified Employee Pension) is a retirement plan ideal for millennials who are self-employed and/or have few employees (one or two). In a SEP IRA account, the money can only be deposited by the employer or the owner of a business.
The SEP IRA account is ideal for small business owners because it allows them to skip contributions when business is down.
In order to choose between the 401(K) and IRA plan, millennials should consider a few things. First, if the employer does not match contributions in the 401(K) plans, then it is better to go with the traditional IRA plan.
Self-employed millennials are better off going with the SEP plans. If one’s income is high such that they do not qualify for deductions in the traditional IRA account, then it is better to go with either the 401(K) plan or the SEP IRA if they are self-employed.
4. Other aspects of retirement such as home ownership and estate planning
When deciding on whether or not to buy a house, millennials should consider the long-term goals, including retirement. Getting the best mortgage plans for the situation and making sure all the aspects of home ownership such as property taxes and are understood can help millennials plan for retirement.
Estate planning means planning for end of life. Millennials may think they are too young to do this. For married young millennials, make sure your kids and spouse are considered in your estate.
While no one likes discussing tragedy, a plan must be in place to safeguard your family.
See Related: 401(k) Loan Pros and Cons Analysis (A Case Study)
5. Final Millennial Retirement Strategy: Use Technology to Help!
The final tip for millennials is to use technology, apps especially that may help in tracking spending, budgeting and investing. Millennials were born in the information age and information revolution.
You are the ones that understand how to get information fast and use it to your advantage. So use this for retirement! There are apps like Acorns that can help keep the change from card purchases and make investments from it. There are also apps that may help budgeting and a quick search through the app store may help one choose a good app suitable for their needs.
Millennials are known to be the most tech-savvy of all the generations so taking advantage of such apps and technological devices should not be a hard task for millennials.
However, as a millennial, you should be careful so that you do not end up obsessively checking the investments and apps since this behavior may have some negative effects. I loved Millennial Money’s post that included a number of different data points on how Grant saved $1.25 million in 5 years.
I love Personal Capital as well. The app is completely free and allows me to check my net worth every day to ensure I’m making the right decisions daily. In addition, I love the cash flow section.
This shows all of the additional cash flow from passive income streams that I’ve been generating.
Concluding Remarks for Millennials Saving for Retirement to Achieve Financial Freedom
In addition, we are advocates for millennials building a dividend portfolio early in their careers (to the extent the above options have been maximized). Check out our guide on finding undervalued dividend growth stocks. Our guide includes criteria to find the best dividend growth stocks.
Don’t have the traditional route? Here are some 401k alternatives to help you obtain financial freedom in a different way.
What are your top 5 millennial retirement strategies? How much should a millennial save for retirement? Every millennial should have a retirement plan and should follow it. Please let us know in the comments below.
Achieving financial freedom is a marathon and not a sprint. Millennial retirement strategies do not ensure success overnight. These millennial retirement strategies should act as a roadmap for your future.
Let me know your questions and comments below. I’d love to hear from you!
See Related Resources:
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- Build Wealth Slowly: An Interview with Spills Spot
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