September 15, 2020
By Rahul Iyer
Retirement may seem a long way off, like 40 years away, but that doesn’t mean you shouldn’t think about it and take action today. Millennials are in a great position to set themselves up for retirement successfully if they start now. Use these three important tips to get ready for retirement today.
Focusing on something that’s so long-term seems hard, if not impossible. It’s not. Put your horse blinders on and don’t look at anything except your ultimate goals/plans. Think long-term. What do you want out of retirement? Now how will you achieve it? You need tax-advantaged accounts, plenty of contributions, and employer matches.
Don’t obsess about the market and what it is or isn’t doing. Don’t even watch the news. Stay focused on the end goal and stay consistent with your savings and contributions.
You only have so much to save each month, after all, you have to pay your bills and live life. But if you multi-task those savings, you’ll be two steps ahead of those that don’t. What do we mean by multi-task? Here are a few thoughts: - Fund your emergency account. Whether you’re setting up your first emergency account or you’re replenishing funds you had to spend, always have 3 to 6 months of expenses on hand. - Pay your debt down. If you have high-interest credit card debt, tackle it first. Get it out of the way as it takes away from money you could invest. Even if you have student loans or housing debt, pay it down aggressively alongside saving for emergencies and retirement. - Max out your retirement savings. You can contribute up to $19,500 in 2020 in your 401K. Even if you can’t save that much, at least save as much as your employer matches. Don’t throw free money out the window – it’s your ticket to financial freedom during retirement. As you can, increase your contributions to maximize your savings.
Tax deferral is the largest advantage of retirement accounts. When you feel like saving now is pointless because retirement is so far off, think of the tax savings. Whether you take advantage of the standard deductions now with a traditional 401K or you contribute after taxes and let your earnings grow tax-free in a Roth 401K, you benefit one way or the other. This means more money in your pocket either now or when you retire.
Whatever you do, find a way to save for retirement now. This isn’t something you should put off – every day you wait costs you more money. Compounded earnings are the way to a financially free retirement, but you have to contribute early and often. If you’re unsure what to do, split up your savings. Say you have 20% of your income available for debt pay off and savings. Split it up amongst your emergency savings, debt payoff, and retirement funds, making sure you at least match your employer’s max contributions to get the most out of your retirement plan.