Guide to Retirement Savings for Millennials and Gen Z
Guide to Retirement Savings for Millennials and Gen Z
In your 20s, retirement can seem like a very long way off. With pressing financial obligations like student loans and car payments, it can be easy to dismiss saving for retirement as impossible.
Here’s the good news: There is no minimum amount you need to save each month, and the earlier you start saving, the faster your money grows.
We put together this brief guide to explain how and why saving for retirement is an important part of early adulting.
Start Saving While You’re Young
Obviously, saving over a longer period of time will result in a larger nest egg, but there’s another big reason to start saving early: compound interest. “Compounding interest” means that you not only earn interest on the money you’ve put away, but also on the already accumulated interest every single year.
In other words, your money doesn’t just grow by the amount you save, but grows based on the interest earned so with each interest payment the balance grows. Getting into the game early means a significantly larger return when retirement rolls around!
Automate Your Retirement Savings
It’s easy to understand why saving makes sense. The hardest part is not making the choice to put money away – the hardest part is remembering to do so every single paycheck. Automating your retirement savings is the easy solution to this problem. Take a look at your budget and see what you can spare each month, even if it’s only a small amount. Those few dollars will go a long way over the years.
401(k) and 401(k) Matching
Many employers offer a 401(k) retirement plan that will allow you to put away those automatic deductions. According to Investopedia, you are only required to pay taxes on money you’ve earned after 401(k) savings have been removed from your paycheck, which should provide another incentive to save.
What’s more, some employers offer “401(k) matching”, which means that they add a certain amount to your 401(k) account based on how much you contribute annually. Most commonly, employers will match a percentage of an employee’s contribution, up to a certain limit.
If your employer offers 401(k) matching, take advantage of it! Ignoring it is like leaving money on the table.
Invest in an IRA
Not offered 401(k) by your employer? Want to diversify your savings? Check out Fairmont Federal Credit Union’s Individual Retirement Accounts (IRAs)! We offer both types of IRA accounts: traditional and Roth. Both allow you to build your retirement savings directly with us.
There are a few difference between Traditional and Roth IRAs, but the primary difference between these types of accounts is taxation: Traditional IRAs are taxed when the money is withdrawn, and Roth accounts are taxed as the money is deposited.3 Both IRAs require no minimum balance to open at Fairmont Federal Credit Union, which might make them more accessible to young investors who are just starting to save. While both options offer distinct advantages, they are still subject to some conditions and certain exceptions. For this reason, you should consult a tax advisor when choosing the best IRA option for you. Once you have an IRA in mind, we can help tailor a savings plan to your budget so you can begin saving for your future.
Boosting Savings As You Age (If You Can)
Most people will increase their annual earnings over the course of their lives. When you take that next, higher–paying position, consider increasing the amount you’re putting away proportionately. If you’ve been saving for a while at that point, you’ll already know how to live within your means while putting away money for retirement. Take advantage of the savings skills you’ve already been practicing and let that compound interest keep doing its work!
Sources:
Investor.gov – Compound Interest Calculator
https://www.investor.gov/additional-resources/free-financial-planning-tools/compound-interest-calculatorInvestopedia.com — Understanding Your 401(k)
Forbes – Traditional or Roth IRAs: 6 Things You Need To Consider
https://www.forbes.com/advisor/retirement/traditional-vs-roth-ira/
