About half of the millennials I meet don’t participate at all in their employer-sponsored retirement plans. Maybe they are not contributing to these plans because they don’t realize how important early and regular retirement savings is to their long-term financial health. Millennials are a generation of instant gratification, so it’s difficult for them to see down the road to retirement that is 30 or 40 years away. In the age of Instagram, millennials are “doing it for the gram” and may be spending money on trips, experiences and outfits that will get them the most likes. Search the hashtags #travelgram #ootd and #instafashion and you’ll find examples of what younger people are spending their money on now. But the future is important too. You won’t get many “likes” on your retirement if you can’t afford it. And guess what? Retirement savings won’t just magically appear; it takes years of dedication to saving.
A recent report said millennials are willing to shell out $5,000 for vacations, more than any other generation. This can be a huge hurdle for millennials saving for retirement. The more money that’s being put toward something now, the less money you’ll have for retirement later. I understand working hard and wanting to occasionally treat yourself. You’ve put in long hours at the office and got that raise, so now you think you deserve that new pair of designer shoes or that trip to Italy. Yet you also deserve to have a great retirement. Why not treat yourself to that?
Think of retirement as an achievement. You work your entire life and, by saving for the future, you’ll then have the ability to not work and instead do whatever makes you happy, full time. So how do you treat yourself to retirement? Practice these four tips:
Start saving now
A general rule of thumb is to save 10 percent of your income. Some of that may go into a savings account, while some goes toward retirement. But every person’s circumstance is different so I say start by saving whatever you can, even if that’s just $25 a week. That $25 is better than nothing, and $25 a week is about $1,200 a year. That’s a great start! Eventually you’ll be able to contribute more than that. Few young people have thousands of dollars to throw into an account, but it’s all about building wealth. This takes time but if you start now, you’ll only increase your chances of success and you’ll also develop the good habit of saving. Also, by starting to save early, you let the power of compound interest to work in your favor. Yes it takes years, even decades, but the sooner you start, the more money you’ll have to celebrate with in retirement.
Contribute to your employer-sponsored retirement plan
You should contribute at least up to what the employer will match. If your employer matches, this is free money! Some people are afraid to do this because they don’t want to have a smaller paycheck. Many people have told me they can’t afford to contribute to a 401(k) or IRA but I always tell them that they can. The money you contribute to these plans is taken out of your paycheck pre-tax. Let me break this down for you, $60 from your paycheck to an employer sponsored retirement plan will be the full $60, not the $40 or so that it would be in your paycheck after tax. You get more bang for your buck by investing your money directly into a 401(k) or IRA pre-tax. And if you really look at the numbers, you probably won’t notice just $60 per paycheck being contributed. The money for your retirement account is taken out before you see your paycheck, so you may not even realize the money isn’t there. Basically, you won’t miss it!
Take a hard look at the purchases you’re making
Are you buying something frivolous just because it is something you want right now, or is it something that will benefit you long term? For example, if you’re buying new clothes, make it an investment piece. A great suit or a black dress are classic and timeless. You’ll be able to use these pieces of clothing for years to come. Trendy pieces with bright colors and patterns may go out of style, and you’ll be spending all of that money to only wear it once or twice.
If you want to go on a trip, look for deals
Plan vacations to cheaper destinations. There are plenty of picturesque places that won’t cost you $5,000. In 2019, Costa Rica, Japan and Sweden are on a list of places where your money will go further. While you’re on vacation, there are also several things you can do to keep costs lower. Here’s 50 tips including make your own meals, use public transportation and don’t buy a ton of souvenirs.
Try and remember that retirement means you will no longer have a paycheck. That money that’s now getting deposited in your bank account every month won’t be there any longer. Instead, you will need to live on what you have saved, for at least 20 years. So here’s an easy way to visualize how much you’ll really need: Look at how much money you live on now and multiply that by 20. Do all of your expenses for the year cost $40,000? You’ll need at least $800,000 to cover all of that in retirement, plus more for medical care, and even more when you factor in inflation. Remember the 10% rule I talked about earlier, save at least that but when you run the numbers you may find you need to save more than 10% to reach your goals.
You can still “do it for the gram.” Try hashtags like “#financialfreedom #money and #wealth. Put on that investment piece you bought and pose for a picture of you putting money into a piggy bank. Go ahead, treat yourself to retirement. You deserve it.