Are you one of the 67 percent of millennials who are saving less than 10 percent of their income each year for retirement? That number comes from a new study by Principal Group. The study found that only 63 percent of millennials started saving before age 25, and of the ones who were saving, only a third were saving at least 10 percent of their annual income.1
If you haven’t started saving yet, there is good news: time is on your side. You may not retire for another 40 years or more, which gives you plenty of time to save for retirement if you make a focused effort. However, you need to start soon, otherwise time may no longer be an asset.
Below are three tips to jumpstart your savings efforts. Implement these tips into your plan to boost your savings rate and get on pace to reach your retirement goals.
1. Automate your savings.
For many millennials, saving for retirement can be difficult because the goal is so far away. You may feel you need your money to pay for more pressing expenses today. Urgent needs can often take priority over long-term goals.
However, your retirement goal is an important one, and to reach it you will likely need to save money today. One way to do that is to automate your savings. That means you set up automatic contributions to savings accounts so you don’t have to make the conscious decision to do so.
For instance, if your employer offers a 401(k) plan, you can make contributions to the plan straight from your paycheck. That way, the contribution is made before you even have the opportunity to spend it on other items or use it for short-term needs.
Another option is to set up automatic transfers from your bank account to an IRA or other savings vehicles. The contributions come directly out of your bank account on a monthly or even weekly basis. That way, you can treat your retirement savings just like you would any other bill that comes directly out of your bank account.
2. Ignore the hype.
According to a survey from Capital One Sharebuilder, more than 60 percent of millennials distrust the financial markets.2 And, why shouldn’t you? You likely watched your parents or other loved ones lose a significant amount of money in the Great Recession of 2008.
You also may feel overwhelmed by the amount of financial news found on television and online. If you follow financial news too closely, you might feel like you’re on a rollercoaster ride, with updates seemingly by-the-minute about the market’s latest movements up and down.
You might be best served by ignoring financial media and even ignoring short-term market fluctuations. You have decades until you retire. There will likely be many times over that period in which the market will be volatile. However, you have plenty of time to recover from any downside movement in the markets.
Instead, focus on your long-term goals. It’s wise to review your investments, but do so on an annual or semi-annual basis. Saving for retirement is a marathon, not a daily sprint.
3. Set a goal.
You wouldn’t leave for a trip without knowing your destination, so why save for retirement without knowing your ultimate goal? It’s helpful to have a ballpark estimate of how much you actually need for retirement. That way, you can use that number to establish your weekly or monthly savings goals. You can also use your goal to track your progress and determine whether or not you’re on pace to retire comfortably.
How do you determine your retirement savings goal? There are a number of online calculators you can use. You also may want to meet with a financial professional. They can develop a custom retirement plan for you, based on your unique goals, needs and challenges. They can then assist you in creating a savings plan and even help you choose the most appropriate investments for your risk tolerance.
Contact your financial professional today to learn more about creating your retirement savings plan.
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