Personal Growth

Retirement Planning for Millennials: 7 Ways to Do It

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The word “retirement planning” is feared by most millennials because it appears to be a daunting endeavor that requires a lot of learning. With the right planning approach, you can achieve all of your financial goals on time.

As millennials, the last thing we want to be told is that we’re nearing retirement age. We’re too young for that, aren’t we? Retirement is for Boomers and our older siblings. However, even the youngest among us are 25 and headed into their long-term careers.

And anyone who’s reached retirement age will say the same thing, “It’s never too early to start thinking about retirement.” So regardless of whether you’re having a crisis that you’ve reached a quarter-century in age or had your over-the-hill birthday last week, there are things that you can be doing to prepare for retirement today.

What is Retirement Planning?

A retirement plan outlines a person’s retirement income objectives along with the activities and decisions that will be taken. As part of retirement planning, one must identify sources of income, evaluate expenditures, and devise a savings strategy.

retirement planning

Aging isn’t cheap. Even if frivolous spending is reduced, medical bills are likely to rise. Not having enough money to cover future needs can create worry and stress. Establishing a retirement investing plan means having financial security with no need to rely on others during your golden years.

How to plan your retirement?

Pay Off Student Debt

Student loans have become a regular part of getting an education, so don’t feel bad if you didn’t make it out of school with less than $50,000 in loan debt. It is likely that the repayment plan you have set up will take 15 or 30 years to pay off, but it will continue to drain your finances. This is especially true with some of the incredibly high-interest rates that come with private loans. 

Make paying off your student loans a priority, so it doesn’t take away from the money you get to bring home each month for the next 30 years. To put that into perspective, if you graduated with a master’s degree at age 25, you wouldn’t have your loans paid off until you’re 55. At that point, you’re only ten years away from retirement age.

Get a Roth IRA or Traditional IRA

If the company you work for offers a Roth 401(k) plan, it’s always a good idea to contribute funds to that account where you can. Although, you can help yourself by building your savings in a Roth IRA. If you’re not familiar with an IRA, it’s an Individual Retirement Account that you can contribute to independent from your company. You can set up your Roth IRA with the bank or credit union where you already have a checking or savings account. 

Keep in mind that, like a 401(k), there are limits to the amount of money that you can contribute to your Roth IRA each year. In 2021, the IRS allows a maximum of $6,000 for the year. If you’re age 50 or older, you’re allowed up to $7,000 with catch-up contributions. Withdrawals in retirement are tax-free.

save for retirement

Individual retirement accounts (IRAs) are savings plans with tax advantages that individuals can use to save for retirement. Banks or credit unions can provide financing for traditional IRAs.

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A person’s annual contribution limit is based on their age, allowing older people to catch up faster. Contributions are pre-taxed, so your investment and growth are tax-deferred and taxable at your tax rate when you withdraw them.

You must have earned income to donate. Contributions may also be tax-deductible for federal income tax purposes, which lowers your tax burden.

Plans Sponsored by Employers

Young people should use 401(k) or 403(b) plans sponsored by their employers. This type of retirement plan has the main advantage of matching your employer’s contributions up to a set amount. Assume you contribute 3% of your income to your retirement account, with your employer matching this amount, giving you a 3% bonus.

Use Cash as Much as Possible

Those who have difficulty saving money can benefit greatly from using cash. Use your debit card, checks, or online bill pay to cover your bills and mortgage but use cash for everything else.

Keep some money with you when you go grocery shopping, pick up lunch, or want to buy a new outfit. By using cash, you can see how much money you physically have available to you.

Swiping a credit card is the same as spending imaginary money while paying cash creates a more tangible transaction. Additionally, it encourages you to save for the extra things that you want to buy.

Pay Down the Mortgage

Give your mortgage some attention when you have extra money that you can put toward the principal. The more money you put toward the principal in the early years of your mortgage, the sooner you’ll have it paid off, and you can gain equity in the house. In addition, this will make it much easier to sell if you eventually decide to downsize. 

In addition to having equity that you can cash in when you sell your home, it will also be available if you decide to get a reverse mortgage. If you’re not familiar with reverse mortgages, it’s when you take out a loan against the equity of your home as you approach retirement age. In contrast to paying it off like a traditional mortgage, repayment isn’t due until you or your heirs have sold the house. This can come after you pass away or move to a retirement home. 

According to All Reverse Mortgage, “When used correctly, a reverse mortgage, also known as the Home Equity Conversion Mortgage (HECM), can add stability to your retirement years.” It’s something to keep in mind as you get closer to retirement.

Get a Life Insurance

Protecting your assets is an essential part of retirement planning. As you become older, your medical expenditures will rise, and you’ll have to negotiate the often-complicated Medicare system. There’s also the matter of life insurance and long-term care insurance to think about.

get insurance

An annuity is another form of policy offered by an insurance firm. An annuity is similar to a pension. You deposit money with an insurance company, which then pays you a fixed monthly amount. There are many different alternatives for annuities and numerous factors to consider when choosing if an annuity is suitable for you.

Speak With a Financial Advisor

Managing long-term finances isn’t always easy. Working with interest rates, knowing how to invest, and finding out what you can afford to put into a Roth IRA each month is a lot of balancing and math. It can be tricky to know what’s realistic and what might be stretching your finances too thin. Meet with a financial advisor so you can get a clear picture of what’s the come, and you can prepare for it.

Saving for retirement is a challenge regardless of the decade. Still, it’s tough for Millennials with debt to overcome and a less generous social security net to fall back on. But saving for retirement doesn’t have to be so hard. Instead, it means that you should plan out what you want to do when you retire or even start thinking about it while still in the working world.

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