The world is changing rapidly, and in order to guarantee long-term economic security, millennials need to update their views on personal finance.
Members of previous generations lived in a time when unskilled labor jobs were plentiful and relatively well paying and undergraduate degrees were tickets to lifelong success. One could expect to retire prosperously with the company that they had worked with for decades. Unfortunately, those days are over.
The idea that one’s financial security in retirement can be secured solely from Social Security benefits, Medicare, or a pension plan is unrealistic for millennials and younger generations. Millennials leaving college face crippling amounts of student debt, and current students are taking on more debt per capita than ever before. Individuals entering the workforce are starting from behind, and have plenty of ground to make up for. As a result, millennials are living with their parents longer than any other generation in recent history, have lower homeownership rates, own fewer cars, and are saving less for their future.
A recent study found that 63% of wealthy millennials (those with investable assets $50,000 or more) are depending on inheritance to fund their retirement. While long-term dependency may be a realistic option for some, too many young Americans lack financial preparation for retirement, and the potential consequences are immense.
Despite America’s current economic wellbeing, the future is uncertain and millennials need to prepare for the rocky road ahead. Careers of blogging or Instagram modeling may provide stability in the short term, but if individuals continue on their current path without planning ahead, they could end up working minimum wage jobs as senior citizens simply to make ends meet.
While the future is uncertain for those of us beginning our professional lives, there are a variety of solutions that we can use to prepare for the future. Here is a list of suggestions from financial planner and Lone Conservative contributor Trevor Zellweger to ensure that the only concern you face heading into retirement is how to delegate the plentiful assets in your will.
1.Don’t let debt stop you from preparing for your future. In addition to paying off student debt, you should be saving money as well.
2. Have a goal in mind with your savings. Everybody should save for emergencies, such as 3-6 months of expenses, large purchases — like a car or home — and for retirement.
3. Live within your means. Create an automatic transfer from your checking account to your savings account after receiving each paycheck. The easiest way to save is out of sight, out of mind.
4. Take advantage of free money. Most jobs offer a 3% or better match on 401(k) plans if you contribute the same amount. This is an automatic 100% return independent of the ups and downs of the market.
5. Diversify. Choose more than one fund to put your money in. Target date funds are a good choice for the limited options in your 401(k), but there are thousands of mutual fund families to choose from.
6. Be tax effective. Roth IRAs are a great option to pay taxes now, while your income is smaller, and save on taxes when they will most likely be higher in retirement. Another tax-sheltered option is permanent life insurance.
7. Use an accountant. CPAs can save you a great deal of money in the short term, and more than pay for themselves with the tax refund they will generate.
8. Aim to save 20% for retirement, but start where you can. Assuming a 7% rate of return after fees, contributing $50 per month when you are 23 into a Roth IRA will grow to $170,849 by the time you can retire with full benefits at 67.
The views expressed in this article are the opinion of the author and do not necessarily reflect those of Lone Conservative staff.