Here’s what it took to help my millennial coworker plan his million dollar nest egg
I’m a curious person, so I nudged my millennial colleague Jessa in the next cube and asked her, “Pssst … How much are you saving for retirement per year?” Instead of ignoring me, she stealthily released all of her financial details to me (it was like a giant ice cream sundae for a finance nerd): * Jessa, at 28, still owes $ 15,000 in student loans , and her husband, who is 30, still owes $ 20,000. * They owe $ 12,000 on their auto loans. * Jessa and her husband have a mortgage of $ 200,000. * She is currently saving $ 0 for her pension plan. (Sorry, but that’s not enough, my friend.) * She and her husband need the help of Facet Wealth – a full-service virtual financial planning service with dedicated certified financial planners. Bank of America, a surprising 16% of millennials aged 24 to 38 now have at least $ 100,000 in savings for retirement. Whoo hooo! It is a reason for celebration. But what about Jessa? What does she need to do to get out of debt and save enough for retirement Why millennials struggle to save for retirement Why do Millennials like Jessa struggle to save for retirement? 1. Housing costs: The # 1 answer (37%) for millennials is the cost of housing, according to the Retirement Pulse Survey. 2. Support family members financially: Millennials often support extended family members with their income. It doesn’t even imply how much you need to save to get the kids to school – remember, financial aid doesn’t cover everything. 3. Insufficient Income: The State of Our Money shares that over half of Millennials (55%) don’t have a retirement savings account, such as a 401 (k) or IRA. About 46% said unemployment was to blame. 4. Student Loan Debt: As of September 2017, the average Class of 2016 graduate owed more than $ 37,000 in student loan debt, according to Student Loan Hero. “Yeah, yeah and yeah,” she said, when I showed her those numbers. “We hit three of those four categories. I just can’t afford to put any money in my retirement account right now.” What my millennial colleague needs to do – and here’s what you can do too! Do you feel like the percentages are stacking up against you? Here’s what to do next. Tip 1: Analyze interest rates. As soon as I said the words “interest rate,” Jessa collapsed in her office chair and pretended to fall asleep. I knew Jessa and her husband refinanced their house last fall, and I asked her about their interest rates. She was only paying 3% of their home and student loans. I suggested asking Facet Wealth if they should invest in retirement more aggressively than paying down their loan debt. (This is what I would vote for!) On the other hand, if you have high interest rates on your own student loans, I suggest you ask Facet Wealth to pay off the debt if your loans carry a rate. higher than your pre-tax investments. . Tip 2: Consolidate those student loans – but there’s a catch. Consider consolidating student loan payments only if you can reduce your payment without extending the term of your loan. In Jessa’s case, she could use this extra money to start building her retirement savings. Tip 3: Make yourself aware of this retirement plan. Jessa needs to save at least 10% of her income. This is the golden rule cited by most financial advisers and other financial experts. If Jessa doesn’t want to struggle to keep her head above water after retirement, she has to invest 10% of her income every year. And none of that “invest just enough to get the employer match” crap. In most cases, retirement savings are not enough for most people, and it won’t scratch the surface to create a big nest egg. Tip 4: To get really rich, invest at least 15%. If Jessa wants to get really rich as a passive investor, she will invest at least 15% of her income. She won’t make Warren Buffett rich, of course, but if she wants at least $ 1 million in liquid assets beyond her home’s value, she’ll try to save 15%, which goes for anyone who are investing for retirement. Tip 5: Never, ever borrow from your retirement plan. You can lend yourself money from your retirement account, but that’s not a good idea. Jessa’s retirement plan is banned, just like yours. Suppose the money is locked. Period, why? * You lose a compound growth of your income. * You repay the loan with after-tax money, which means the interest you pay will be taxed again when you retire it (unless you borrow from a Roth 401 (k). * If you quit your job, you will have to pay off the loan, usually within 60 days of your departure. If you cannot, you will have to pay taxes on the balance and a 10% penalty if you are under 55. Don’t mess with all of that. Tip 5: Take the time to consider the options that are best for you. Once you have mastered your retirement savings, you may want to consider other potential opportunities. Jessa and her husband may want to get into real estate investing or go wild over several hassles. Either way, she needs to make sure it is worth her time and energy and can contribute to her long term goals. Tip 6 : Do your own research. Jessa is proud e graduated from a liberal arts college, which means she’s a lifelong learner. Here’s another thing she’ll do to maximize her success: she’ll read whatever she can get. r hands on. She will research funds and options within her 401 (k), read books on investing, books on real estate, articles on debt destruction and more. She will absorb blog posts, listen to podcasts, and develop her own investment philosophy. She will be her own advocate when it comes to her own needs, risk tolerance and more, and so can you. How Much Retirement Money Should You Try to Save? Jessa is 28, but Millennials span a wide range of ages – from 24 to 38. Check out the basic rules for saving at every age. Savings target for your 20th birthday Accumulate 25% of your gross overall salary during your twenties. You may need to reduce this amount if you have accumulated colossal student debt. Savings target for your 30th birthday Have at least one year’s salary saved before the age of 30. If Jessa makes $ 100,000, she should have $ 100,000 in savings. Savings Goal for 35-40 Year Olds Those of you in your mid-30s to the end of the millennium should have double your annual salary saved. You should have four times your annual salary saved if you are 40. Steps to Get There If she is serious about getting out of debt and saving enough for retirement, Jessa needs to do these three things. Step 1: Begin. This article won’t help – if she (or you) don’t do anything about it. You need to take action if you really want to save enough and get out of debt. It takes time and discipline and not even a lot of money per month (depending on your age). Step 2: Invest aggressively, automatically. Two facts: * If you start at 24, you can have $ 1 million at 69. All you have to do is save $ 35 a month – and get a 10% return on your investments. Save more and you will become a millionaire faster. * If you start at age 40, you can save $ 1 million by saving $ 561 per month, assuming a 10% return. I informed Jessa that since she’s saved $ 0 for retirement at this point, she can start saving at least $ 158.15 per month for 40 years with a 10% return while still being able to become a millionaire. $ 158.15 – that’s the cost of a pair of new shoes every month, I informed her. Get Facet Wealth on Your Side No one ever says, “Be your own doctor.” Why would you assume, then, that you should be your own financial advisor (unless you are a financial analyst or advisor)? You need Facet Wealth, which can help you have a more prosperous life by helping you work with a dedicated CFP® Professional at an affordable price.Jessa informed me that she has signed up for our retirement plan company and had also made a plan to get out of debt the next day. I bought her a cupcake and put it on her desk. See more from Benzinga * Click here for Benzinga options trades * 8 Must-Have Tips for Getting Your Work From Home Employee Background Check * 2021 Crypto Preview: Here’s What’s Next (C) 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.