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What Can Millennials Do Now to Save for Later?

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When you’re in your 20s, the last thing you want to think about is retirement.

Though it may be 40 or 50 years away, retirement comes at a high price. According to a survey by the U.S. Bureau of Labor Statistics, retirees spend an average of nearly $41,000 annually to maintain their standard of living.

Think about it. That number is the equivalent of many full-time salaries. If you retire at 65 and live well into your 80s or 90s, you’ll need at least $800,000 to live comfortably.

$800,000 certainly is a lot of money, but you can build up your nest egg to this level if you start early. Here’s how:

Invest in a 401(k)

The average income for millennials (people age 16-34) is between $30,000- $35,000. When you first start your career, most of that money goes to bills, student loan debt and living expenses. But no matter where your salary falls, it’s important to begin saving a percentage of it in a retirement or investment account. If your company matches 401(k) contributions, put enough money aside every pay period to qualify for this match. At some companies, this amount may be 2-3 percent of every paycheck. If you’re making $30,000 a year, this would amount to about $100 a month.

Even if your company doesn’t offer a match, you should still make contributions to your 401(k). This year, people under 50 can contribute up to $18,000 to a 401(k). A 401(k) is a person’s greatest savings vehicle and it allows you to save pre-tax income in an account where the money likely will grow year after year.

In some cases, you may consider a self-directed brokerage account to further diversify your investments. People tend to have limited availability in a typical 401(k), so it’s important to look at how funds are invested and what funds are available.

With a self-directed brokerage account, you can invest some of your retirement contributions into funds outside of what’s available in your employer-sponsored 401(k). Not every employer offers this option, and those who do often set parameters on the kind of funds you can invest in and how much you can invest in this manner. You also must maintain a minimum balance for a self-directed brokerage account. While this gives you more control over your retirement investments, this option probably is best for knowledgeable investors. If you think a self-directed brokerage is right for you, you can either manage the account yourself or seek the help of a financial advisor.

No 401(k)? Then Consider an IRA

If for some reason your company doesn’t offer a 401(k), open either a Roth or Traditional IRA. An IRA, or individual retirement account, is a great option for long-term financial security. You can contribute pre-tax contributions to a Traditional IRA if you qualify and after-tax contributions to a Roth IRA. For 2015, anyone under the age of 50 can contribute up to $5,500 to a Traditional IRA and up to that same amount to a Roth IRA, depending on your income. A Roth IRA also is a great savings option if you plan to buy a home or need emergency funds for some reason. You can withdraw contributions from a Roth IRA anytime tax and penalty-free if you are under age 59 (but please keep in mind that you may have to pay tax and penalties on any earnings). You also can use a Roth IRA for educational expenses and withdraw up to $10,000 for a first-time home purchase. Overall, IRAs are good investment options if you’d like to increase your retirement funds and still maintain some flexibility.

Reduce Your Debts

The average college graduate owes nearly $30,000 in student loan debt—a number that is close to the average starting salary for many 20-somethings. Student loan debt can make it difficult to save for the future. However, many lenders look at this debt as good debt, because a college education usually leads to a better job and more stable income. Even still, it’s important to make your payments on time every month and to pay more than the principal, if you can. If you pay even $20 extra a month, you could significantly reduce the amount of interest you end up paying for the life of the loan.

Aside from student loans, you should minimize or avoid high-interest debt. Credit cards may help to establish your credit history, but if you accrue a lot of charges and don’t pay your monthly minimum you could end up with more debt than you bargained for. The average credit card debt in the U.S. is more than $27,000, meaning many people are spending money that they could have saved toward paying down this high-interest debt. Rather than spend your hard earned money on credit cards, devote these funds to building up your nest egg for retirement.

Get Term Life Insurance

At 25 or 30, you likely aren’t thinking about your mortality. But anything can happen in life, so you should be prepared.

Term life insurance is a worthwhile option, especially if you are married or have dependents. Purchase term life insurance as early as possible for the longest timeframe. There are several options on the market that offer more coverage for a lower premium (especially for millennials) and that cover immediate and long-term needs for your beneficiaries in the event something happens to you. Term life insurance rates increase when you turn 35, so if you are under this age purchase a policy now to secure a more affordable rate.

It’s never too early to start saving. Even if you’re under age 35, put away as much as you can now to secure a comfortable retirement in the future. Trust us, when you hit your golden years and can still maintain the lifestyle you want, you’ll appreciate—and enjoy—all the sacrifices you made.

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