When it comes to saving for the retirement, Millennials have an unique outlook. For starters, they aren’t exactly sure how much they need to retire. And, understandably, they’re concerned about that – especially after living through the economic crash of 2008. At the same time, Millennials believe that they will have a better retirement than past generations.
But, that optimism hasn’t motivated them to start saving. In fact, 57% of Millennials haven’t begun saving yet. That, is actually, troubling to hear.
For starters, Millennials will have less Social Security benefits and generous pensions than their grandparents did. Additionally, Millennials are expected to live longer than past generations. This means that they’re going to need a lot of money set aside if they want to enjoy their golden years.
Just how much do they need?
According to Robert Powell in USA Today, “Older Millennials — those born in the early 1980s — will need about $1.8 million stashed away to maintain their standard of living in retirement while younger millennials — those born in the late 1990s — will need upwards of $2.5 million.”
In other words, you’re going to have become a multimillionaire. And, if you’re young and broke, that may sound impossible. But, if you follow these words of wisdom, you will be guaranteed to retire comfortably as a multimillionaire.
Determine how much you’re going to need for future expenses.
Coming up with a ballpark figure on how much you need to pay your expenses, such as your mortgage or rent, insurance, and utilities, is the first place to start when developing your ultimate goal of becoming a multimillionaire. This amount can be based on your current cash flow and expenses. That’s why it’s important that you create a budget as soon as possible.
The reason that this is important is that it lets you know the minimum amount you need to live comfortably, which again is based on your current budget. This means that if you’re spending more than you earn, then you you need to reevaluate your current financial situation.
However, keep in mind that certain expenses, such as your mortgage, may disappear. But, new expenses, like travel and healthcare, will appear. So, you want to deduct and add these to your ballpark figure to give you a better idea on what your future expenses will be.
If you need help with estimating your future spending, here’s a helpful calculator that will do that for you.
Speaking of calculators, Bankrate has a handy retirement calculator that will help you determine what it will take to have a secure retirement.
Start saving immediately.
If you want to retire as a multimillionaire then you need to start saving as early as you can. As Chuck Saletta from the Motley Fool points out in Time Money, a 21 year-old would have to stash $173 a month at 10% Annual Return to earn $2 million by the time that they’re 67 years-old. If that person waits until they’re 45, that figure jumps dramatically to $2,100 per month.
Of course, saving is just the beginning. As Saletta says, you need to invest in stocks “for the long term returns they can provide.” Saletta adds, “While there are no guarantees in investing and stock market returns can be incredibly volatile, over the long run, stocks have returned around 10% annually.” That means that you’ll be able to save less now in order to reach that multimillionaire status.
The easiest way to set aside this amount each month is to automate your savings. This means taking this figure to be automatically withdrawn from your paycheck and deposited directly into your savings account or 401(k).
Here’s something else that Saletta reminds us. You don’t have to do all of this saving on your own. Money put into a “retirement account like a 401(k) or an IRA will compound for you tax-deferred.” You may even qualify for a tax deduction and withdraw your money tax-free.
Besides the government, your employer can help as well. As Saletta explains, “If your boss offers a 401(k) or similar plan, it might come with a match.” Typically, a “match is $0.50 for every $1 you sock away, up to some percentage of your salary.” When you think about it, that’s essentially free money.
If you’re a freelancer, then you’ll have to fund your own retirement. SEP IRAs and a Solo 401(k) are favorable because they have tax breaks and you can contribute more.
You need to plan more than just saving.
As my friend Murray Newlands says, “Simply saving and hoping that it will come to you will never be good enough. You will only receive what you earn.”
While you should definitely be patient and consider the long-term by investing in a 401(k) plan, you also want to be a little more aggressive with your investing. If you’re young and and new to investing, either start by looking at industries that you know and being aware of your time frame, risk tolerance, and financial situation. More importantly, ask around for a referral. You can begin by asking your parents who their planning professional is.
Focus on being debt-free.
Any expert will tell you that one of the best ways to become a millionaire is to get yourself out of debt. For example, if you have student loans, pay those off before you start saving for your retirement. The reason? It impairs you from saving enough cash each month to reach your financial goal. Also, you end-up paying a lot of money in interest fees.
The same goes with credit cards. Pay them off immediately. If you do use them, make sure that you have enough money to pay the balance each month.
Wealthy individuals are known for spending their money wisely. This means living below their means by skipping the McMansion and impractical luxury vehicles. They don’t purchase items that they don’t need. And, if they do, they’re not going to pay full-price. They use coupons or shop at more affordable stores like Target.
Living a frugal lifestyle gives you the opportunity to invest more money towards your future.
Have multiple streams of income.
Having multiple streams of income allows you to either get out of debt faster, or reach your savings goal in less time. This means picking-up a second job as an Uber driver or starting your own home-based business. Both have flexible offers and can put hundreds of dollars a month into your retirement fund.