The oldest millennials will be 39 in 2020, but that doesn't mean these young people should overlook saving for retirement. In fact, getting a head start on retirement saving is incredibly important for financial success in the future.
Unfortunately, too many millennials don't realize the need to save for retirement, and that could result in a nasty surprise when they get older. A new study from T. Rowe Price revealed that millennials are actually better at saving for retirement than some of their older peers, but a large portion of the group remains behind on setting aside money for retirement.
If you are a young person who hasn't created a plan for retirement savings yet, you must understand why making a comprehensive plan early in life pays off in the long run.
Why You Need to Start Early
The earlier you start setting aside money for retirement, the less cash you need to squirrel away each year. By being proactive about retirement saving, you can also lessen the amount of time you need to spend in the workforce, according to Retirement CheatSheet. A smart retirement plan will allow you to set a reasonable date for retirement and stick with it.
Even if you understand the need to start your retirement planning and saving process early, you may find it difficult to actually set money aside. Retirement planning can be complex, and requires more than putting a few dollars from each paycheck into a separate bank account. Luckily, there are systems in place that should make it easier for you to save. It's critical that you take advantage of these options when the opportunity presents itself.
The Power of the 401(k)
A 401(k) account offers a simple way to save money for retirement through your workplace. These retirement accounts are employer-sponsored, so you need to work in a workplace that provides a 401(k) option to take advantage of the retirement savings potential.
When you sign up for a 401(k) plan, a percentage of your monthly paycheck is diverted into the 401(k) before taxes are taken out. That means you don't have to pay income tax on money you're setting aside for retirement, which is an immediate advantage. Additionally, many businesses offer matching for employee 401(k) contributions up to a certain level. That means the organization will contribute some money to your retirement savings every time you contribute.
How Much to Save
The amount you'll need in retirement varies from person to person, and depends on what type of life you want to lead after you leave the workforce. You can cut costs by downsizing your home and planning to avoid extraneous vacations and trips, but some expenses are relatively consistent for all retired people. Medical bills are a massive expense in retirement, and you want to ensure that your retirement savings are large enough to cover any health expenses that crop up.
According to Fidelity Investments, couples retiring today will need more than $200,000 to stay ahead of health care costs. That number will be even higher for the millennials who begin saving today, so getting a head start is more important than ever.
Enrolling in a company 401(k) and realistically examining your retirement goals and expenses are important steps toward creating a strong financial future. Millennials are at a critical point in their lives where the decision to save can have a profound effect on their future financial well being. If you are proactive about saving now, you will find that things are easier for you financially later on.