Time flies when you’re having funds. Start saving NOW.
Your 20s and 30s are a time for careers to blossom and income to grow. While it can be tempting to increase your lifestyle in tandem with income increases, be careful with the “I’ll save later” mentality. Folks routinely live into their 80s and 90s these days. Next time you splurge on something, consider who is paying for it: “now” you, or 95-year-old you? Millennials and Gen Z have the advantage of time. If you start now, long-term compound interest will do a lot of the heavy lifting for you. If you wait, you’ll end up having to work twice—or thrice—as hard for the same result.
A good savings target is 15% of your income.
That’s a very general target, and it might need to be adapted to your season of life. For example, this can be a real challenge if you are also saving for a house and/or paying off student loans. The main point is to make a commitment to your retirement savings by contributing a consistent amount with each paycheck (or if you are self-employed, every invoice). The absolute percentage is secondary; more important is you set a goal and stick to it. Going outside of your comfort zone is important too. After all, nothing good comes easy. Is it fairly painless to set aside 5% of your paycheck? Then let’s stretch for 8%. Over time, challenge yourself to build up to 15% or more.
How will your lifestyle change?
In retirement, you may no longer be drawing a salary. Although, many folks take up some form of self-employment that brings in an income. It’s up to you whether earnings will be part of your retirement plan. If not, your retirement savings should be robust enough to supplement your Social Security without sacrificing your lifestyle. You can check your projected Social Security payments on the Social Security Administration’s website.
Great Recession Battle Scars.
Millennials may have unpleasant memories of the Great Recession and the family turmoil it may have caused. A conservative attitude toward risk isn’t surprising given those circumstances, but sticking to overly conservative investments has its own risks, such as not keeping up with inflation. While valid, many concerns that lead to overly conservative investing are not grounded in truth. If this is you, come talk to your Benchmark advisors. Our job is to provide sound education on market history and the investments you own so you can own them with confidence. Truth fights fear.
Figure out how long your savings will last.
To get a reasonably accurate figure, try to derive your annual “burn rate.” That’s the amount of savings you’ll need to live on each year. You then see whether it will last for your estimated life expectancy, which you can check with any number of online calculators. If the answer is no, you’ll have to increase the amount you save now and/or cut back on your retirement plans. Sound complicated? Well, it sort of is. You don’t have to do it alone, and we’re happy to help!
Big picture.
Your retirement finances are not set in stone. You have options at any age. Just don’t put it off—the sooner you understand the gives and takes of your financial situation, the sooner you can take positive action to protect your golden years. They’ll be here before we know it.
