FOR GEN Y: HOW TO AVOID WORKING FOREVER
Is it possible for most of the Generation Y people to avoid working forever?
According to a survey The Retirement Readiness of Three Unique Generations: Baby Boomers, Generation X, and Millennials, released by the Transamerica Center for Retirement Studies, 60% of the millennials expect to retire at age 65 (or earlier). Majority of Generation Y investors began saving for retirement at age 22. In other words, more than half of them do not see themselves retiring later than their parents.
This article will outline ways to avoid working forever.
Follow – and Stick to – Monthly Budget. This is the very first step to achieving a sound retirement, done by determining the amount you need to save. The best way to do it is through budgeting. It is ideal to save 10% to 15% of your income for retirement. However, if you start early in your career and settling debt, just set aside whatever you can. Allocate 50% of income for fixed expenses (groceries, rent, and student loans), 30% for fun fund (clothing, movies, and trips), and 20% for your emergency fund. Gen Ys can also try free online budgeting tools such as Mint.
Save Early. Invest Early. Do it Often. If you begin saving and investing as soon as possible, you will have ample time to take advantage of bull markets and compounding returns. The key to a good investment is saving consistently and starting early. Millennials, always think that every little amount you save can make a huge impact if you start early. No need to wait until you have ‘money’ to do so. Diversify your portfolio. Invest in bonds, commodities, and stocks, among others from different markets and geographies.
Do Not Depend on Pensions and/or Social Security. There are certain estimates on the Social Security Trust Fund, saying the fund might be depleted by mid-2030s. Disregarding the accuracy of such estimations, expect reduced benefits. It is not ideal to depend on Social Security alone for your retirement, anyway. After all, the government won’t take care of your retirement. Most payouts nowadays are tantamount to a minimum wage job. So it is still advisable to invest in the stock market for long-term goals, specifically retirement.
Normally, pensions are only available to government employees. Majority of states are facing severe pension-funding shortfalls, making future payouts uncertain. Moreover, pensions are more of a defined contribution. So employees must invest well their contributions for a high future payout. On a positive note, declining pensions make these millennials benefit from greater job flexibility, having the freedom to transfer from job to job.
Bring 401(k) with You. Like what has been mentioned earlier, a drop in pensions give the Gen Ys the freedom to move from one job to another. But they should still monitor their retirement assets offered by their employers: 401(k) savings plans. Based on a study done by Fidelity Investments, 41% of individuals in Gen Y do not rollover their 401(k)s but they cash them out when they leave their job. This financial choice can mean losing at least half of the account balance to taxes and penalty fees, depending on their tax bracket. They also miss the opportunity to earn compound returns. Rolling your previous 401(k) into the plan by your new employer or an IRA will maximize your retirement savings. Aside from that, never get a loan from your retirement account, but escalate the percentage you contribute to that account every time your salary increases.
Deal with Student Loans. The moment you finish your studies and have your first job, settle your student loans, as well as your consumer debt so that it does not accrue interest. Settling your student loan debt has additional benefits. For instance, you may be able to build your dream home right away or qualify for a mortgage. You won’t also default on these debts if you can pay it off the earliest time possible. Make sure to use any employer assistance or loan forgiveness programs you might obtain through work, but balance those benefits with the possibility of higher paying or more rewarding jobs somewhere else. Lastly, forget not to claim your student loan interest tax deduction when filing your federal tax return.
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