Benzinga
This is what it cost to help my millennial colleague plan her million-dollar nest egg
I’m a curious person, and I fell over my millennial colleague, Jessa, in the next cube and asked her, ‘Pssst … How much do you save per year for retirement?’ me all her financial details (it was like a giant ice cream Sundays for a financial nerd): * Jessa, 28, still owes $ 15,000 in student loans, and her husband, who is thirty, still owes $ 20,000 . * They owe $ 12,000 on their car loans. * Jessa and her husband have a $ 200,000 mortgage. * She is currently saving $ 0 in her retirement plan. (Sorry, but that’s not enough, friend.) * She and her husband need help from Facet Wealth – a virtual financial services service with dedicated certified financial planners. According to a survey by Bank of America, a surprising 16% of millennials between the ages of 24 and 38 have now saved at least $ 100,000 for retirement. This is reason for celebration. But what about Jessa? What should she 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 Cost: The number 1 response (37%) for millennials is the cost of housing, according to the Retirement Pulse Survey. 2. Supporting family members financially: Millennials often support extended family members with their income. It does not even involve the amount you have to save to get kids through university. Remember that financial aid does not cover everything. Insufficient income: The State of Our Money shares that more than half of millennials (55%) do not have a retirement savings account, such as a 401 (k) or IRA. About 46% said that unemployment should be blamed. 4. Student Loan Debt: According to Student Loan Hero, as of September 2017, the average graduate from the 2016 class owed more than $ 37,000 in student loan debt. “Yep, yeah and yeah,” she said as I showed her these numbers. “We hit three of these four categories. I just can’t afford to put money in my retirement account right now.” What my millennial colleague needs to do – and that’s what you can do too! Do you feel that the percentages are stacking against you? Here’s what you need to do next: Tip 1: Analyze interest rates. When I say the words ‘interest rate’, Jessa falls into her desk chair and pretends to fall asleep. I knew Jessa and her husband had been refinancing their house this past fall, and I asked her about their interest rates. She pays only 3% on their home and study loans. I suggested that Facet Wealth be asked if they should invest more aggressively in retirement than pay off their loans. (This is what I would vote for!) On the other hand, if you have high interest rates on your own student loans, I would suggest asking Facet Wealth about paying off debt if your loans are higher than your investments before tax. Tip 2: Consolidate the student loans – but there is an advantage. Consider consolidating the student loan only if you can reduce your payment without extending your loan term. In the case of Jessa, she can use the extra money to start compiling her retirement savings. Tip 3: Get rid of the retirement plan. Jessa should save at least 10% of her income. This is the rule of thumb that most financial advisors and other money experts call. If Jessa does not want to struggle to stay afloat after retirement, she has to invest 10% of her income every year. And none of this “invests just enough to suit the employer”. In most cases, these are not enough retirement savings for most people, and it will not scratch the surface to create a solid nest egg. Tip 4: To get really rich, invest at least 15%. If Jessa as a passive investor wants to get really rich, she invests at least 15% of her income. Of course, she would not get Warren Buffett rich, but if she wanted at least $ 1 million in liquid assets above her home value, she would shoot to save 15%. This applies to everyone who invests for retirement. Tip 5: Never borrow from your retirement plan. You can borrow money from your retirement account, but it is not a good idea. Jessa’s retirement plan is off limits, and so is yours. Assume that money is locked up. Period. Why? * You deserve compound growth. * You repay the loan with money after tax, which means that the interest you pay is taxed again when you withdraw it at retirement (unless you borrow from a Roth 401 (k). * If you leave your job, you to repay the loan, usually within 60 days of your departure.If you can not, your tax is due on the balance and also a penalty of 10% if you are under 55. Tip 5: Take time to to find out which options are best for you.After you have retirement savings under control, you may want to look at other possible opportunities.Maybe Jessa and her husband want to dive into real estate investments or whatever it is, she should make sure it’s worth her time and energy and can contribute to her long-term goals. Tip 6: Do your own research. Jessa is a proud graduate of a liberal arts college, which means she’s a lifelong learner. something she will do to maximize her success: she will read everything she can get her hands on. She explores funds and options within her 401 (k), read investment books, real estate books, debt relief articles and more. She absorbs blog posts, listens to podcasts and develops her own investment philosophy. She will be her own advocate when it comes to her own needs, risk tolerance and more, and you can too. How much retirement money should you try to save? Jessa is 28, but millennial ages span a wide range of ages – from 24 to 38. Read the rules of thumb for savings at every age. Savings goal for you twenty. Accumulate 25% of your total gross salary during your twenties. You may need to reduce this amount if you have accumulated a large amount of student loan debt. Savings goal for your thirties Save at least one year salary by the age of 30. If Jessa earns $ 100,000, she needs to save $ 100,000. Savings target for ages 35 to 40 Those who participated in the end-of-the-thirties of the millennial spectrum should double your annual salary. You should save four times your annual salary when you are 40. Steps to get there If she wants to be serious about getting into debt and saving enough for retirement, Jessa needs to do these three things. Step 1: Start. This article will not help – if she (or you) do nothing about it. You need to act if you really want to save enough and lose your 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 could have $ 1 million at age 69. All you have to do is save $ 35 a month – and get a 10% return on your investment. Save more, then you will become a millionaire faster. * Starting at 40, you can save $ 1 million by saving $ 561 a month, assuming you have a 10% return. I told Jessa that since she was saving $ 0 for retirement at this point, she could start saving at least $ 158.15 a month for 40 years with a 10% return and still be a millionaire. $ 158.15 – that’s the cost of a pair of new shoes every month, I informed her. Leave Facet Wealth on Your Side No one ever says, “Be your own doctor.” Why then would you assume that you should be your own financial adviser (unless you are a financial analyst or adviser)? You need Facet Wealth, which can help you lead a more prosperous life by helping you work with a dedicated CFP® Professional at an affordable price. Jessa informed me that she had reported a pension plan for our company and also made a plan the next day to get into debt. I bought her a cupcake and put it on her desk. That was reason for celebration. Read more about Benzinga * Click here for options on Benzinga * 8 important tips to get a background of your work-from-home employee * 2021 Crypto Preview: here is what comes next (C) 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.