Retirement planning has always been a long-term journey, but for younger generations, navigating this path has become more complex. With rising costs and other economic factors at play, young investors face a variety of challenges. However, the key to a successful retirement requires proactive planning and consistent effort. Here's how younger generations can better plan for retirement.
1. Start Saving And Investing Early
The greatest advantage younger generations have is time. Often young professionals enter the workforce with the incorrect mindset that retirement is too far away to concern themselves with. However, saving early — no matter how modest the contributions are — can have an incredible impact. By saving and investing early, your money has more time to grow, allowing the power of compound earnings to work in your favor.
Creating a healthy saving habit early is key. Beginning now and continually contributing will greatly reduce the stress of playing catch up in the final stretch of one’s career.
2. Leverage Tax-Advantaged Accounts (And Employer Matches)
One of the most efficient ways to create a comfortable retirement is to take advantage of tax-advantaged accounts like 401(k)s and IRAs, often offered by an employer. These accounts offer tax shelters to allow savings to grow exponentially over time. If your employer offers a retirement contribution match, make sure to take full advantage of the "free money”. In the event an employer does not offer a retirement plan, an IRA can be opened and contributed to. The individual must have earned income to take advantage of the IRA.
To further strategize, contribute as much as you can to your 401(k) or IRA, with the goal of maxing out your contributions if your budget allows. This strategy has a twofold benefit. It not only lowers your taxable income but will also help boost your retirement savings. And, don’t forget about Roth IRAs, which allow for tax-free withdrawals in retirement, providing a powerful long-term benefit.
3. Be Mindful Of Debt
Debt is one of the most significant barriers to saving for retirement, especially for younger generations who often carry student loan and credit card debt as well as other financial obligations. The key here is to balance paying off debt while also contributing towards your retirement savings. Having debt does not require you to delay saving for retirement.
Start by building an emergency fund that covers at least six months of expenses for a one-income household or three months for a two-income household. This can prevent you from dipping into your retirement savings when unexpected financial needs arise such as layoffs, medical emergencies, or urgent home repairs, allowing long-term financial goals to continue without disruption. Once that emergency fund is in place, consider paying off high-interest debt (like credit cards) aggressively while continuing to make steady contributions to your 401(k) or IRA. Even if you cannot contribute the maximum right away, consistent, small contributions can set you up for success in the long run.
4. Invest Smart, Not Emotional
The stock market can feel overwhelming, especially for younger investors who have witnessed significant volatility. However, it is important not to let short-term market fluctuations derail your long-term financial goals.
When investing, it is essential to focus on your time horizon and risk tolerance. These are the two key factors that should guide your investment decisions. With 30-plus years until retirement, short-term fluctuations are absorbed into a long-term time horizon. It is important to choose an investment strategy that reflects your comfort with risk and the number of years you have until retirement. By staying invested and making decisions based on your personal financial situation rather than emotions, you will be better positioned to meet your retirement goals.
5. Create A Retirement Plan
Understanding what you want from retirement is essential to crafting a solid financial plan. Do you want to retire early? Travel the world? Perhaps work part-time or start a business in retirement? Taking the time to visualize your retirement lifestyle will help you determine how much you need to save and what steps to take now to reach those goals.
Setting a clear vision for your future is powerful as it keeps you motivated during times when it might feel easier to spend money in the present rather than save for the future. It is a reminder of why making sacrifices now ensures a comfortable, fulfilling retirement later.
A financial planning professional can be a valuable resource in helping you define your retirement goals and develop a strategy to meet them. With the right guidance, you can create a roadmap that aligns with your vision and ensures you are making the most of your resources to secure the future you want.
Final Thoughts
By starting early, utilizing tax-advantaged accounts, being mindful of debt, investing smartly, and staying focused on long-term goals, millennials and Gen Z can secure a financially stable retirement. It is about creating good habits early, staying disciplined, and remembering that time is on your side. The more you do now, the more you’ll be able to enjoy the retirement lifestyle you envision.
If you feel unsure about where to start or need help with your retirement planning, consider speaking to a financial professional who can help guide you through the process and tailor a strategy that suits your unique financial situation.
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This document is for educational and informational purposes only and does not constitute an advertisement or solicitation of any securities or investment services provided Mainstay Capital Management, LLC (“MCM”). This document should not be construed as investment, tax, or legal advice, or a solicitation, or a recommendation to engage in any specific strategy. MCM is an independent investment adviser registered with U.S. Securities and Exchange Commission. MCM specializes in workplace savings plan portfolio management and retirement planning advice for active employees and retirees. This document was prepared by MCM primarily based on data collected and analyzed by MCM. The opinions expressed herein are those of MCM alone and are for background purposes only. MCM does not purport the analysis to be full or complete or to constitute investment advice and should not be relied on. In addition, certain information contained herein or utilized to draw the conclusions contained herein has been provided by, or obtained from, third party sources. While MCM believes that such sources are reliable, it cannot guarantee the accuracy of any such information and does not represent that such information is accurate or complete. All materials and information are provided “as is” without any express or implied warranties by MCM. MCM charges its fee based on a percentage of assets under management, which creates an incentive and conflict of interest to increase assets in that account. Furthermore, MCM has two different fee schedules, and therefore has a conflict of interest when assets or accounts move from the lower fee schedule to the higher fee schedule. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Consult your financial professional before making any investment decision. Please see MCM’s Form ADV Part 2A and Form CRS for additional information.
