8 Savings Tips for Millennials Who want to Retire Rich

Posted on Jun 30, 2017

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source: govtechworks.com

The thought of retirement seems to be far-fetched for many young people and the numerous bills that you have to pay do not make it any easier. However, the reality is that postponing your retirement savings is a big mistake, as it is likely to translate to retiring under not so good circumstances or retiring later than the ideal age.

This is backed up by findings of the NerdWallet study that suggested the 2015 college graduates will retire at the age of 75 despite the current retirement age being 62. This is not cast in stone however and you can begin writing your retirement story today by simply making better savings decisions that will let your money work for you.

Here are 8 retirement tips to help you get started on safe retirement planning and earlier rather than later:

  • Create a Budget
    It is important to prioritize your retirement savings by beginning to save as soon as possible. Although you may feel overwhelmed by student loans that stretch your budget and make you feel like you cannot save for retirement, your financial plan should include retirement savings as this will allow you to have more savings by the time you hit your retirement age. While financial advisors recommend that 15% of your pay be dedicated to your retirement, you can save less than this percentage but be sure to increase with each month. Besides, this makes savings much easier as it becomes a habit.
  • If your employer offers you a 401(k) or similar retirement plan and contributes on your behalf, give priority to it and Save there First.
    You will do well to save enough in your 401(k) account to be able to capture your employer’s match that is as good as free money. For instance, where your boss is offering 50 cents for each dollar you put in your account up to 6% of your pay, which is an acceptable policy, then at least 6% of your pay should be deferred to that retirement account. This translates to 9% in savings translated as 6% from your contribution and 3% from your employer’s contribution. Today, you can contribute up to $18,000 to your 401(k) while individuals who are aged over 50 years will have to add an additional $6,000 to cater for catch up contributions.
  • Contribute to a Roth IRA
    If you have maximized your traditional 401 (k) contributions or your employer does not have a Roth 401 (k) provision, you will do well to consider Roth IRA. Besides the tax benefits, contributing to a Roth account comes with the flexibility of being able to withdraw contributions whenever you need it especially in the event of an emergency without attracting any tax or penalty fee if you are 59 ½  years or older.
  • Automate your Savings and Pay Yourself First
    Financial discipline can be such a huge challenge especially when you have too many bills to pay. As such, automating your savings is a sure way of ensuring that you save each month. That is, your company will ensure your pretax dollars are moved from your paycheck so that the money does not get to you to put it to the account, as this might as well not happen.
  • Invest Wisely
    It is critical to make smart investment choices with your Roth IRA and 401(K). That is, consider funds that allow a bigger return but come with low expense ratios. The best way to do this is to select index funds over varied asset classes to ensure proper diversification. You will do well to think about having a portfolio of between 80% and 100% stocks since you are young and can accommodate fluctuations in the market.
  • Invest in Equities
    Although you may have witnessed how people lost money during the financial crisis in the past decade, it is worth taking risks and investing in equities when it comes to investing for the future. That is, put your money in a long time horizon. The upside of this is that higher level risk will make up for potential short-term losses. Even then, you need to adjust the risk for your investment portfolio as you age by periodically revisiting your financial plans.
  • Boost and Increase your Savings Each Year
    Consider increasing the amount of money you put aside for your savings each year until you achieve a 10 to 15% target rate. You can increase your savings whenever your pay is raised, make extra income or when you make money from your side gigs.
  • Practice Good Spending Habits
    Being able to take control of your spending habits is a surefire way being able to save more. Consequently, you will be better placed to take charge of your retirement account to ensure that your future is secured. You may want to consider living below your means as this will enable you to strike a balance between your retirement and other issues that require finances such as your student loan.

Investing for retirement at a young age is the key to retiring comfortably as you will accumulate a sizeable nest egg. Thus, you will do well to seek the help of financial advisors to guide you through investing for retirement and ensure you get started on the right path.

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