5 things every millennial should know about saving for retirement

Retirement can seem so far away that you might not want to think about it. But for millennials, it shouldn’t be an afterthought since they have the best money-making asset on their side — time.

Millennials, or those born between 1981 and 1996, aren’t as far away from their retirement years as you might think. The oldest millennials are now more than 40 years old. With full retirement age at 67, they might not yet be fully on track when it comes to saving for retirement, diversifying their investment portfolio, and taking advantage of every benefit now while they still can.

Here’s what millennials need to know about planning for retirement.

1. Save now (even if you don’t think you should)

For something that feels so far away, it’s easy to put off retirement savings and planning. But the more you save now, the less stressed your future self is likely to be.

You can do it, through:

1. An IRA. If you have nothing else, open an IRA account with a robo-advisor and make auto payments to your account every month. Even $10 or $20 — which seems small — can add up over time. You can use a traditional or Roth IRA — the biggest difference is how you’re taxed. If you think you’ll retire in a higher tax bracket, go with a Roth IRA, which takes after-tax contributions and that’s more money in your pocket when you eventually start deductions. Otherwise, go with a traditional IRA, but keep in mind that your withdrawals will be taxed when it comes time to take the money out.
2. A savings account. While dedicated retirement accounts are one of the best ways to boost your funds, they’re not the only way. You can also make incremental contributions to a high-yield savings account. The best savings accounts now offer interest rates above 1 percent, but that fluctuates with market conditions.
3. Additional income. Get a bonus? Add it to your savings. Finish paying off a debt, like a car payment or student loans? Add those payments to your investment account. Did you pick up a side hustle? Use it to pay off debt sooner and stash some of it away in your retirement accounts. Big contributions are great but aren’t always feasible, especially when you have other obligations right now. Use what you have on hand to make small, smart contributions.

Here’s how much you should have saved for each age. 

2. Diversify everything you can

There’s no one way to save for retirement. You can have a work-sponsored 401(k) as well as an IRA. You can have a taxable investment account and a high-yield savings account. The more accounts you have, the more protection you’re giving your future self.

That’s because spreading your money out across multiple accounts and securities is one of the best ways to safeguard your investments. Avoid putting all your cash into one stock or asset. Instead, look for low-cost index funds, exchange-traded funds, and other investments that spread your money across multiple types of assets such as stocks, bonds and real estate.

3. Capitalize on employer benefits

If you’re lucky enough to have an employer matching program with your work-sponsored 401(k), you can save even more for retirement now.

Employer matches vary widely from company to company, but it’s a good idea to vet potential employers for what they contribute to these plans. Two of the most popular types of matching are dollar-for-dollar and partial matches. Partial matches are when your employer matches contributions up to a certain amount. You might see companies match 50 percent of contributions up to, say, 6 percent of salary. Here’s what that looks like.

Say you earn $80,000 a year. If you contribute 6 percent of your salary, or $4,800, your employer would pitch in $2,400 a year on top of your contributions. For 2022, all workers can contribute up to $20,500, while those age 50 and over can contribute an additional $6,500. And any employer contribution comes on top of these maximum contributions, up to $61,000 a year between the two contributions. That’s a hefty chunk you can put towards your retirement each year with your employer’s help.

You can also take advantage of other employer benefits, like if they have a student loan match program where your employer matches your student loan payments every month, up to a certain dollar amount or percentage. That could help you pay off your debt sooner and devote more of your money to retirement savings.

4. Make regular goals

If you’re in the 40 (or almost 40) club and you haven’t given retirement much thought, you have some catching up to do. Give yourself regular, attainable goals to meet. For instance, you may start out by making small, regular contributions to your retirement account. Then you might increase those contributions in a few months.

You may also find other ways to maximize your savings. Let’s say you have a side hustle to help pay off outstanding debt. Once the debt is paid off, you can use that income to supplement your savings. That could be adding more money to your IRA or savings account. It could also cover regular home costs that your paycheck would normally cover and you can then increase your 401(k) contributions as much as you can afford.

5. Don’t be afraid to adjust

Your goals don’t have to look just like this, but setting and revising your retirement goals are important to make sure you’re on track to retire comfortably. While you’re not fresh out of college like some other folks, you have more time than you think to get your retirement plan in order.

Think about how much money you need to retire that’ll last you throughout your retirement. You can use a retirement calculator to help you find the right number. Use your resources now to help you figure out how to reach that goal. For instance, can you boost your contributions now with your current employer or look for a new job that has a hefty employer match? Can you pay off your home before you retire or do you plan to downsize to save on expenses?

Your life at 70 years old won’t look the same as it does at 40, so it’s alright if plans change. Give yourself a bit of grace and remember that it’s not a bad thing if it doesn’t go according to plan. Have a backup (or two). Your retired self will thank you.

Bottom line

While retirement may seem like a long way off, time is your biggest ally in reaching your goals. The important thing is to start today, even if it’s small. You’ll give yourself the time to get in the habit of saving and investing and therefore a much greater likelihood of reaching your goals.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.