3 Questions About Retirement Planning Every Millennial Should Ask
According to a recent study from the Transamerica Center for Retirement Studies, the median retirement savings for millennials is $31,000.1 That amount may represent a good start. However, millennials are likely to face a number of big challenges in retirement and will likely need a substantial amount of savings.
Life expectancy is one of the biggest challenges millennials may face. People are living longer than ever, and life expectancy is expected to continue to increase. If you retire at traditional retirement age, it is possible that you may need to support yourself with savings for several decades.
Millennials also may need to shoulder much of the burden for funding their retirement. Previous generations could rely on employer pensions, but many companies have eliminated those kinds of benefits. Social Security payments could also be reduced in the future if the program’s funding issues aren’t resolved. This all means that many millennials will have to rely almost entirely 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 questions to ask yourself about your retirement plan. If you don’t know the answers to these questions, you may want to consult with a financial professional – sooner rather than later.
1.) What is Your Retirement Number?
Before you can embark on a journey, you have to know where you’re going. When it comes to retirement planning, your destination is your savings target. That’s the amount of money you need to save to comfortably fund your planned retirement. It’s often referred to as your “retirement number.”
You can’t predict every expense you may face in retirement, but you can develop a reasonable estimate based on inflation and your current expenses. Think about how your lifestyle may change between now and retirement, and then build a projected budget to estimate your future cost of living. 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.
2.) Have You Automated Your Savings?
Many people fail to save because they choose to use their money on more urgent short-term priorities. If you have decades until retirement, you may not be focused on saving for retirement. Perhaps you feel it’s more important to use your funds on student loans, credit card debt or buying a new home.
While you have to meet your current obligations, it’s also important to put something away for retirement, even if it’s a modest amount. Set up automatic transfers from your paycheck or checking account to an IRA or Bank On Yourself plan. With your savings on autopilot, you eliminate the option to spend that money on other expenses, and it makes saving a no-brainer.
3.) How Much Are You Contributing to Your Retirement Accounts?
Accounts such as 401(k) plans and IRAs can be powerful retirement savings tools because 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.
However, keep in mind that if these accounts perform well, you will have to pay taxes on a larger number in retirement, which means you will pay much more in taxes than you would have if you did not defer the tax and paid it now. For this reason, you may also wish to consider investing some of your retirement savings into a Roth IRA or other post-tax vehicle which offers tax-free withdrawals during your retirement years.
That said, your employer may offer a matching contribution to your 401(k), helping you to accumulate assets. Consider contributing to your 401k up to the employer match (after all, that’s free money), and then look at other tax-advantaged plans as well as safer income-providing assets such as annuities to make up a balanced retirement portfolio.
Ready to develop your retirement savings strategy? Let’s talk about it! Contact us today and we can help you analyze your needs and implement a plan to achieve your retirement goals.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.