In a generation that’s scrambling for employment opportunities, the thought of retirement and end-of-career financial goals is often met with pure silence.
Today, millennials make up 40% of unemployed workers, while Generation X and baby boomers make up 37 percent and 22 percent, respectively. But despite the current financial state of millennials and the struggle to find jobs, it’s never too early to start thinking about retirement goals and plans.
BlackEnterprise.com caught up with certified financial educator Tonya Rapley of My Fab Finance and VP Senior Financial Consultant for Charles Schwab & Co, Inc. Antwone Harris to get insights on what millennials can do now to make sure they’re prepared for retirement later. Check out their five tips below.
1. Get a financial adviser: Rapley suggests all millennials seek out a financial adviser in order to get a clear idea of how to set financial goals and what steps are needed to meet them. The financial educator recommends young professionals select an adviser by examining the financial practices of those around them and asking someone whose financial decisions they respect to recommend a professional who has helped them manage their money.
2. Take advantage of your company’s employment savings plan: One of the biggest mistakes millennials make is opting out of their company’s employment savings plan. Rather than putting aside a portion of their income for a 401k plan, millennials often think its best to be greedy now and play catch up later. Harris reminds millennials that the earlier they start saving for retirement the better because their financial obligations will only increase the older they get with responsibilities like a mortgage, student loans, and child education savings plans causing them to divide their funds elsewhere.
3. Rollover your employee savings program if you switch jobs: Rapley admits that one of her biggest regrets is cashing out of her employment savings plan at her old job. She advises millennials to inquire about rolling over their retirement savings if they leave a job rather than opting out for a mini payday that will only hurt their retirement plans in the long run.
4. Save 10% of your salary each year: “By starting in your 20s and saving just 10% of your salary, you give yourself a significant advantage,” says Harris. “If you wait until your 30s, you’ll have to contribute at least 15-25% of your income. Starting in your 40s, you will have to save more like 25%-35% of your income. And if you start saving in your mid-40s or later, you’ll have to set aside as least 35% of your income for retirement and max out all of your tax-deferred retirement account options.”
Both Rapley and Harris advise young professionals to think about the small contributions they can make now that will in turn have a long-term effect on their end-of-career financial goals.
5. Invest in stocks: Recognizing that it takes more than just a 401k plan to secure a comfortable life after retirement, Rapley and Harris suggest millennials invest in stocks and other investment funds without being afraid to endure some risk. Harris points out that investing $2,000 each year for 20 years in S&P 500 can help you build a wealth of more than $72,000 over two decades. But if you leave your money in treasury bills, which is basically like cash, you’ll only end up with about $50,000 over the same time period.
“It is important to remember that as a young person, time is on your side,” advises Harris. “Even if the market has ups and downs in the short-term, you have a long time to recoup from volatility and earn strong returns.”
To learn more retirement tips for millennials and other professionals from any age group pick up Black Enterprise’s October issue on newsstands.