Planning for retirement can seem premature when you have only been in the workforce for a decade or so. But as the oldest Millennials begin to hit middle age, retirement suddenly does not seem so far away. From record-busting market highs to unprecedented pandemics and global financial disasters, the path to retirement looks a bit different for those born after 1980. Here are five things Millennials should consider when planning for retirement.
1. The Earlier You Start, The Less You Need
It can be easy to underestimate the time value of money. But funds set aside or invested today can balloon in the future. As the adage goes, "Time in the market beats timing the market.”1 The earlier you can begin saving, even if you can't afford to put much aside at once, the longer your funds will have to grow. Consider upping your 401(k) contribution, opening an IRA or Roth IRA, or setting up an automatic weekly transfer to savings to make the process automatic.
2. Free Money May Be Available
Not taking advantage of a 401(k) or another retirement match can mean almost literally leaving money on the table. If your employer offers a retirement match, you can double the impact of each dollar you invest up to the match without dipping into your own paycheck.
3. Volatility Is Not the Enemy
The oldest Millennials graduated into the dot-com boom and bust of the early 2000s, had their thirties ushered in by the Great Recession, and were approaching 40 when the COVID-19 pandemic took hold. As a result, it can be tough for many 30- and 40-year-olds to imagine a "normal" market—one not marked by major near-daily swings.
But volatile markets aren't necessarily a negative thing, especially when it comes to retirement planning. Consider the alternative—something like Japan's "Lost Decades."2 From 1990 to the present, Japan's annual economic growth has averaged less than one percent per year.
When you are planning for retirement, a lost decade can mean stagnated savings and loss of buying power to inflation. In comparison, some volatility may not be so bad.
4. Target Date Funds Can Help Asset Allocation
If you do not have the time or inclination to thoroughly research your retirement investments, consider allowing a target date fund to do the work for you. These funds are designed to evolve over time, slowly transitioning fund assets into more conservative investments as the target date nears. A
target date fund can ensure that you are not invested too conservatively or too aggressively based on your age and retirement horizon.
5. It is Never Too Early to Start Planning
Whether you are raising young children, considering a home purchase, caring for aging parents, or enjoying the single life, retirement can seem like a distant stop on the horizon for many Millennials. However, careful planning now can allow you to loosen the reins later, when your physical health or personal circumstances may require more flexibility.
Though you don't need to draft a full-blown 30-year plan today, having some idea of where you would like to live, what you would like to do, and how much you will spend each year to maintain your lifestyle in retirement can be helpful for planning purposes.
Footnotes
1Why Time in the Market is More Important Than Timing, FinanceBuzz, https://financebuzz.com/time-in-market-matters
2 Lost Decade Definition, Investopedia, https://www.investopedia.com/terms/l/lost-decade.asp
Important Disclosures
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual security. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.
Asset allocation does not ensure a profit or protect against a loss.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess.
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