Millennials are in for a surprise: a recent YCharts survey reveals 65% of millennials ages 22 to 37 say they’ll reach seven-figure wealth status by age 45 or younger, yet the average age of those worth at least $1 million is 62, a number that hasn’t changed in years.
Even worse: two-thirds of millennials have $0 saved for retirement and 95% are not properly saving for retirement, according to a report released this year by the National Institute for Retirement Studies.
The takeaway? Millennials could use a financial wakeup call when it comes to the reality of their potential earnings and savings, and they also need to start saving more for retirement.
How can I save for retirement?
When it comes to retirement, you’ll need 70% to 100% of your pre-retirement annual salary if you want to live comfortably. If you’re planning on retiring early, financial expert Suze Orman says you’ll need at least $10 million in savings.
Start today. There’s no time like the present to start saving and investing for your retirement. Compound interest means your savings and investments will generate earnings, which are reinvested to generate even more earnings. The younger you start putting money away for retirement, the better off you’ll be in your senior years.
Automate your savings. Pay yourself first and grow your nest egg without thinking about it by signing up for your company’s investment and retirement plan, then have your contributions automatically deducted from your paycheck each month.
Tighten spending. Look at your budget (or create one if you need to) to figure out ways to spend less. To quote Orman, “Own your own home. Get rid of your debt. Live below your means but within your needs.” Use the money saved to add more to your retirement accounts.
Pick a retirement plan. There are several different options available, but the major ones are IRAs and 401(k)s. Individual Retirement Accounts (IRAs) are investment tools to fund retirement savings. A traditional IRA provides tax advantages and contributions you make may be fully or partially deductible, depending on your circumstances. A Roth IRA is similar to a traditional IRA but contributions are not tax deductible and qualified distributions are tax free.
A 401(k) is a retirement savings plan sponsored by your employer. You can save and invest some of your paycheck before taxes are deducted and many employers will match some or all of your contribution to the plan. You don’t have to pay taxes on a 401(k) until you withdraw money from your account.
How to tell if you’re on track. Set goals with benchmarks along the way. You can also use a retirement calculator to learn how much you may need to invest and save to retire at your preferred retirement age.