What Millennials Need to Know About Retirement
The millennial generation is in the perfect position to have an amazing retirement. With plenty of years left to save, compound interest can significantly help to boost your own initial investments.
The key, however, is knowing how to save so your returns are maximized. Ready to find out how? Here are a few things millennial savers need to know about retirement.
Take Full Advantage of Employer Matching
If your employer offers a 401(k), they will match a certain amount of your own contributions. This is typically a percentage of your salary. Amazon, for example, matches 2 percent.
This means that at $500 a week you should be contributing $10 to your 401(k). Your employer will then match that contribution, so you end up with $20 each week. It may not sound like much, but employer matching is essentially free money.
After working with the same company at that same 2% for just five years, you could accumulate an initial investment of $5,200 in your 401(k). Without employee matching you would only have $2,600. That is a lot of free money you could be missing out on.
Consider a Few High-Risk Investments for Your Portfolio
While low to moderate-risk investments are much less volatile than their high-risk counterparts, they also have a lower return. Millennials who are in a good financial situation should consider adding a few high-risk investments to their portfolios.
These high-risk investments carry the potential for a significantly higher profit over the long term, and usually come in the form of stocks. The trade-off is that there is also the possibility of losing your entire initial investment. Even then, however, you could bounce back in the following year.
Create a Plan – and Stick to It
Being a little spontaneous when you’re young is okay, but you should have a financial plan in place. There is no need to micromanage everything. Instead, learn the basics of asset allocation and tweak the plan a little once annually.
Millennials also need to figure out how much money they’ll need to have saved by retirement. You can find a ton of free calculators online which will help you figure this number out. Once you have a number, adjust your savings goals and plan to ensure you’ll reach that number in time.
Don’t Freak Out at The “Big Number”
When you figure out how much money you need for retirement it can be frightening. That number looks incredibly “big” and many become stressed-out because they think they won’t be able to make it.
Here’s the thing though: your initial investment will be almost nothing if you start saving now. Compound interest will be the majority of your holdings, in fact. For example: a $6K yearly investment over thirty years into an account with a 6% compound return will leave you with $503K. The initial investment is only $180K.
Remember a Non-Retirement Savings Account
All your savings should not be tied up into a retirement savings account. That would force you to withdraw from that money in the event of an emergency. Consider matching or going half what you put into retirement for a general savings account. If you save $10 a week in retirement, place $5 or $10 into a non-retirement savings account. This helps keep you (and your retirement) financially secure.