I’d like to introduce into my personal finance column a very, very dry topic for almost every millennial: Retirement. Retirement is not only dry, but for some can seem ominous and even unfeasible. However, one of the biggest financial goals in our capitalist society is to not just retire, but retire well, and looking into it as early as possible (i.e. right now) can be one of the brightest “investments” you make in your personal financial career.
Somewhat ironically, I’m going to premise how to start thinking about retiring by saying how precarious the current retirement situation is looking for millennials. We are awash with student debt, pensions are less prevalent now than they used to be, and social security is on pace to be tapped out by 2034 (mostly due to a quickly aging population), plus we’re expected to live longer. Due to the fact we’re getting off to a late start, and have one of the slower cars in the race, some analysts believe that we simply won’t be able to retire at the same rate (or in the same way) the same way that previous generations did. Even baby boomers are at risk of the landscape surrounding retirement funding.
However, this generation is young! And the younger you are, the earlier you can start making payments to your future self. There are many, many years until riding off into the sunset becomes reality, and compound interest can be one powerful building tool for you. Therefore, the situation isn’t pretty, but you’re putting yourself in the right mindset by reading this!
As a young person, the hardest part about long-term saving/investing is just starting. In order to effectively save, you have to develop the habit of savings (i.e., save early and save often). CNN Money’s advice is to begin with an “Emergency Fund” idea. A great place to start is to attempt (by maybe putting aside 10 to 15% of each paycheck) to build up a small savings of about three months of living expenses. Then, take this amount and place it in a very safe and secure investment, like a money-market fund or something. One, it’s an easily achievable goal, in addition to being a great place to start. Two, it’s a good place to begin developing the savings habit and getting your feet off the ground. Quick hit tips (also from CNN Money) to help hit this first small level: 1) Budget hard and well, 2) Small changes in your everyday spending habits can make a big difference (cutting out the smoking or Starbucks), 3) Dump your unneeded stuff on Craigslist, D) While not appealing, a side job strictly for savings can help easily build this first bit of savings.
Now, when you start: Keep it simple. Super savvy investments and speculation is not an ideal way for a beginning (or arguably anyone) to invest for retirement. The ideal move for young and early retirement investors is to divide and conquer. The market will inevitably grow, and as you continue to place 10% to 15% of your annual salary towards your future, it’s best to let your money grow in a bunch of diverse and low-cost assets. That is a very safe bet to ensure your money grows constantly and consistently.
The end results of your retirement savings should be to max your potential savings in any and all opportunities. For example, if your employer offers match plans like 401ks, max the amount of money you can place in them A.S.A.P. Another interesting idea for early-season savings is being able to invest in more volatile investments earlier on. High risk and high return go hand-in-hand, and in this stage of your career you wouldn’t be risking as much in the trade-off for higher yields. So when you’re younger, you can start deeper into the equity market and as you age, you can push further and further into the long term bond markets.
If you’re (seriously) more interested in starting to fund your future savings, check out the Vanguard Calculator. While it’s not a complete financial advisor by any means, it can help you begin to accurately quantify retirement costs, especially as your budgetary situation becomes more and more clear in the next few (vital) years.