When Should Millennials Start Thinking about Retirement?
Research is revealing that although several millennials are making wiser financial choices than individuals of earlier generations, there are still a number of these younger folk who aren’t giving their retirement years nearly as much consideration as they should be.
Many of the younger generation think that they won’t have to worry about saving too much for their retirement because of Social Security being available. However, the amount they will receive from this will not be nearly enough to cover their living expenses by the time they stop working – which is why now is the right time for them to start planning financially for their golden years.
The Right Time is “Right Now”
As many as 50% of millennials have revealed that they don’t have any form of 401(k) and a mere 30% have mentioned that they have started to plan for and save money towards their retirement. However, the general consensus among the younger generation is that they want to enjoy themselves right away, meaning that they end up delaying saving towards retirement for as long as possible.
It’s essential for millennials to understand that “right now” is when they need to think about saving and start taking the required action to do so.
Learn about the Power of Compounding Interest
Several younger people aren’t aware of how compounding interest works and that it will be most effective when taken advantage of during their 20s and 30s. For instance, a 20 year old who invests a $1,000 lump sum and adds just $100 to it each month with a 4% interest rate will end up with more than $70,000 after 30 years. However, a 50 year old who invests the same amount, adds the same amount monthly, and gets the same 4% interest will only have about $15,000 saved after 10 years.
Halt Unnecessary Spending
A number of employers have the option for employees to contribute to various sponsored retirement funds, with the most common option being that of a 401(k). While the 3% match that most companies offer might not sound like much money, the truth is that it will accumulate substantially over time – thanks again to compound interest.
Most employers off the 401(k) contribution match as a voluntary option, meaning that millennials who don’t enroll as soon as they’re eligible to do so will effectively be losing out on a 3% raise on their earnings. This is one situation that can be classified as obtaining free money, which is why it’s crucial for millennials to take full advantage of an offer like this.
While it is often tempting for the younger generation to spend their earnings on the latest vehicles, gadgets, and other “nice to have,” the truth is that this will all come at the demise of their retirement. If you are a part of the millennial generation and you’re concerned about having enough funds to retire at some point in your future, schedule an appointment with our advisory team today.