Gen Z and Millennials Need to Save for Retirement ASAP
A surprising Comet survey found that 42 percent of Baby Boomers had nothing saved for retirement. Even though a majority of Baby Boomers had some retirement savings, most respondents did not believe they had saved enough.
Sadly, Gen Z and Millennials should know they're not immune to the sorts of unexpected expenses, job losses, and poor planning that derailed retirement savings for so many of their elders. The bad news about Baby Boomers should inform younger adults that it's never too soon to begin making regular contributions to retirement savings and improving other areas of their financial lives.
The more time you have, the bigger the chance that you can plan for a comfortable retirement. However, if you’ve been slacking on saving, it's never too late to improve your situation.
3 Simple Steps to Start Saving for Retirement Today
Sometimes, people of all ages find that they face an obstacle because they just don't know how to begin planning for retirement. Almost everybody can benefit from these three basic steps.
1. Establish an Emergency Fund
Nobody can predict all unexpected expenses or financial problems, but you can plan for them. To be financially secure, you should have quick access to funds that can cover an urgent dental bill or even a few months of lost income without having to resort to high-interest debt.
The common tip is to save three to six months of expenses in your emergency fund. This may feel overwhelming though, so keep in mind that it’s fine to start slow, just as long as you start and keep going. Consider a smaller goal, like $500-$1000 to start with. Another tip is to set up automatic transfers to a savings account to make growing an emergency fund effortless. If the fund pays interest, it will help you grow your savings even faster. Once you've funded this account, you can start diverting more money to long-term savings.
2. Take Advantage of Tax-Advantaged Retirement Products
Some companies match contributions to work-sponsored retirement funds, and getting extra savings help from an employer only makes sense. You could be leaving “free” money on the table if you don’t take advantage of employer matches. Even without that option, a 401(k), IRA, or annuity can leverage tax advantages and compounding to build nest eggs much faster than a regular savings account.
A Health Savings Account can also help you prepare for retirement. Once you reach a certain balance, you can invest that amount to help it grow. Learn more about how your HSA can help in retirement ►
3. Reduce Debt
In particular, paying interest for unsecured debt makes it harder to save for retirement and to reduce monthly bills. An emergency fund can keep you from increasing your debt load, but you should also make a plan to reduce credit card balances you already have.
Remember that every time you reduce your debt load, you will also lower next month's payments. Hopefully, you can soon eliminate credit card payments completely. As you pay off each balance, you can allocate more money towards paying off the next one.
Why Younger Adults Can and Should Plan for Retirement Now
When you direct funds to a retirement account, your money starts earning even more money. The earlier you begin, the more contributions and compounding will help you achieve your goals. Similarly, paying down debt early means that you'll spend less money on interest and fees.
Like most people, you probably know you should have already started planning for retirement. Why not consider taking at least one of these steps today? You'll thank yourself later.
This blog is up to date as of May 2021 and has not been updated for changes in the law, administration or current events.
