Saving for our retirement funds isn’t something we as millennials think about in the early stages of our careers. We’re immediately focused on decreasing our student loans, affording rent, and trying to break out of living paycheck to paycheck. That being said, somewhere in between all of that, we need to start saving for our retirement funds. I understand that there are times when it seems like there is no extra money to put away, that it’s all needed to make payments now, but by building a healthy nest egg over time, you can be more prepared to retire when you mean to.
When it comes to getting tips on how to save for retirement, the first source many of us go to are our parents. For myself, my parents told me to start saving in a 401K. By putting some money away now, I wouldn’t pay tax on it yet which would help me out now and I’d have a source of income when I retire. While this was great advice, there are more options available, especially as more companies aren’t giving out pensions anymore. Millennials need more options when it comes to saving up for retirement.
Roth 401K
When it comes to 401K plans, most of us are familiar with the kind my parents introduced me to. You put some money away, tax-free, and then pay taxes later on when you use it. Some businesses will also contribute to your 401K, usually a percentage of what you add yourself. A Roth 401K, however, is when you pay taxes for your contribution now and then don’t have to worry about paying taxes later on in your retirement. This may actually be the better option for millennials as taxes generally increase over time.
Health Savings Account (HSA)
A Health Savings Account or HSA is another option to help cover health-care costs during your retirement. This is a tax-free way to create an account specifically dedicated to paying your healthcare needs. Any time money is used to cover medical expenses, it’s tax free. As we get older, unexpected health issues are likely to occur. It certainly helps to have a savings accounts reserved just for these needs. You may not need to visit a doctor now, but at some point you will and those bills will add up. Better to be prepared.
Contribute More With Raises
As millennials get the promotions and the raises, we often grow a little too confident in the lifestyle we can now afford. However, that can quickly turn into again living paycheck to paycheck, just with more expenses. Instead of being tempted to spend more, add more to your retirement plan whenever you get a raise. You don’t necessarily have to give up the entire differential to your retirement, but if you can manage to live on your current income now, it won’t be a huge sacrifice to limit how much you’ll increase your spending budget.
Remember To Save While Paying Off Loans
As I’ve said before, millennials are determined to get rid of their loans and try their best to make sizable payment whenever they can. The more you pay now, the sooner the loan will be payed off. While focusing on this goal, you shouldn’t be spending your entire paycheck on your monthly expenses and loan payments. It’s important to both save and pay off at the same time. Designate a percentage of your paycheck to your savings account and use the rest to cover your expenses. Yes, this means it will take longer to pay off your loans, but in the long run, you’ll be able to retire with a healthy savings account because you started contributing early and regularly.
Of course, the best tip is to consult with the experts. Consult with a professional financial planner to discover what your best options are both now and in the future as your income and life goals change. New rules may come into play, new limits and new benefits as the years go on. These advisers can keep you up to date and take a lot of the worry off your shoulders. It never hurts to ask.
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