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Here’s what it took to help my millennial colleague plan her million dollar nest egg
I’m a curious person, so I bent my millennial colleague Jessa on the next cube and asked her, “Pssst … How much do you save for retirement each year?” Instead of ignoring me, she stealthily dropped all of her finances Details (it was like a giant sundae for a finance nerd): * Jessa, 28, still owes a student loan of $ 15,000 and her 30-year-old husband still owes $ 20,000. * They owe $ 12,000 on their auto loans. * Jessa and her husband have a $ 200,000 mortgage. * She is currently saving $ 0 on her retirement plan. (Sorry, but that’s not enough, friend.) * You and her husband need help from Facet Wealth – a full-service virtual financial planning service with dedicated certified financial planners. A surprising 16% of millennials between the ages of 24 and 38 have now saved at least $ 100,000 for retirement, according to a survey by Bank of America. This is cause for celebration. But what about Jessa? What does she have to do to get out of debt and save enough for retirement? Why Millennials Struggle To Save For Retirement Why Are Millennials Like Jessa Struggling To Save For Retirement? 1. Housing Costs: The # 1 answer (37%) for Millennials, according to the Retirement Pulse Survey, is housing costs. 2. Financial support from family members: Millennials often support extended family members with their income. This doesn’t even include the amount you need to save to send kids to college – keep in mind that financial aid doesn’t cover everything. 3. Insufficient Income: The State of Our Money reports that more than half of Millennials (55%) do not have retirement assets like 401 (k) or IRA. Around 46% said that unemployment was to blame. 4. Student Loan Debt: As of September 2017, the average graduate of the 2016 class owed more than $ 37,000 in student loan debt, according to Student Loan Hero. “Yes, yes and yes,” she said when I showed her these numbers. “We reached three of these four categories. I just can’t afford to put any money into my retirement account.” What My Millennial Colleague Has To Do – And Here’s What You Can Do Too! Do you feel like the percentages stack up against you? Here’s what to do next. Tip 1: analyze the interest rates. As soon as I said the words “interest rate”, Jessa collapsed into her desk chair and pretended to fall asleep. I knew Jessa and her husband had refinanced their home last fall, so I asked them about their interest rates. She only paid 3% on her home and student loans. I suggested asking Facet Wealth if they should be more aggressively investing in retirement than paying off debt on their loans. (I would vote for that!) On the other hand, if you have high interest rates on your own student loans, I would suggest asking Facet Wealth about debt settlement if your loans have a higher interest rate than your pre-tax investment. Tip 2: Consolidate These Student Loans – But there’s a catch. Consider consolidating student loan payments only if you can lower your payment without extending your loan term. In Jessa’s case, she could use the extra money to top up her retirement savings. Tip 3: Familiarize yourself with this retirement plan. Jessa needs to save at least 10% of her income. This is the rule of thumb cited by most financial advisors and other money experts. If Jessa doesn’t want to struggle to survive after retirement, she has to invest 10% of her income every year. And none of that crap “invest just enough to get the employer to the match”. In most cases, that’s not enough to secure retirement for most people, and it doesn’t scratch the surface to create a hefty nest egg. Tip 4: To really get rich, invest at least 15%. If Jessa really wants to get rich as a passive investor, she invests at least 15% of her income. She’s not going to make Warren Buffett rich, of course, but if she wants at least $ 1 million in cash over her home value, she’s going to shoot to save 15%. That goes for everyone who invests in retirement. Tip 5: Never borrow from your retirement plan. You can borrow money from your retirement account, but it’s not a good idea. Jessa’s retirement plan is taboo, and so is yours. Suppose the money is locked. Period. Why? * You lose compound growth on your income. * You repay the loan with after-tax monies, which means that the interest you paid will be taxed again when you withdraw it in retirement (unless you borrow from a Roth 401 (k). * When you get your job If you can’t, you owe tax on the balance and a 10% penalty if you’re under 55. You don’t want to mess with all of this Tip 5: Take the time to consider which ones Options are best for you. Once you have your retirement savings under control, you may want to take a look at other potential options. Jessa and her husband may want to dive into real estate investing or whatever it is, she needs to make sure it’s hers Worth your time and energy and can add to your long-term goals. Tip 6: Do Your Own Research. Jessa is a proud graduate of a liberal arts college that means she learns for a lifetime. Here’s another thing that she will do to maximize her success: She will read everything she can get your hands on. She will look for funds and options in her 401 (k), read investment books, books on real estate, articles on destroying debt, and more. She will blog, listen to podcasts, and develop her own investment philosophy. She will be her own lawyer when it comes to her own needs, risk tolerance and more, and so can you. How Much Money Should You Save For Retirement? Jessa is 28 years old, but Millennials span a wide range of age groups – from 24 to 38 years old. Follow the rules of thumb for savings at any age. Savings Target for Your 20s Earn 25% of your total gross wages in your 20s. You may need to lower this amount if you have a huge amount of student loan debt accumulated. Savings target for your 30s Save at least one year’s salary up to the age of 30. If Jessa makes $ 100,000, she should save $ 100,000. Savings Target for 35-40 Year Olds Those of you who are at the end of the thousand-year spectrum in your mid-thirties should save twice your annual salary. By the time you’re 40, you should be saving four times your annual salary. Steps To Get There If she’s serious about getting out of debt and saving enough for retirement, Jessa has to do these three things. Step 1: get started. This article won’t help – if you (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 and automatically. Two Facts: * If you start at age 24, you can have $ 1 million by the age of 69. All you need to do is save $ 35 per month – and get a 10% return on your investment. Save more and become a millionaire faster. * If you start at 40, you can save $ 1 million by saving $ 561 per month, assuming you get a 10% return. I informed Jessa that since she has saved $ 0 for retirement at this point, she can save at least $ 158.15 per month with a 10% return for 40 years and still become a millionaire. $ 158.15 – that’s the cost of a pair of new shoes each month, I informed her. Get Diversity on Your Side Nobody ever says, “Be your own doctor.” Then why should you assume that you should be your own financial advisor (unless you are a financial analyst or advisor)? You need Facet Wealth that can help you live a more successful life by working with a Dedicated CFP® Professional at an affordable price. Jessica shared with me that she signed up for our company pension plan and created a debt relief plan the next day. I bought her a cupcake and put it on her desk. It was cause for celebration. For More Information From Benzinga * Click here to receive option trades from Benzinga. * 8 tips you need to get a background check on your work-from-home employee on Benzinga.com. Benzinga does not offer investment advice. All rights reserved.