5 Ways Millennials Can Know They’re on Track for a Comfortable Retirement
Did you know that 59% of UK millennials find it hard to save for retirement due to their current life stage, compared to 48% of Gen Z and 39% of Gen X?
Retirement planning can seem like uncharted territory for millennials. With rising costs of living, student loans, and changes in the employment market, financial planning is more challenging than ever.
Building strong financial habits now is the key to enjoying a stress-free financial future as you get older.
Practical Ways Millennials Can Achieve Retirement Readiness
Here are five practical strategies to help you prepare for retirement.
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Save a Consistent Percentage of Your Income
Building a solid financial foundation is crucial for a comfortable retirement. Start saving at least 15% of your annual income for retirement. While this may seem like a lofty goal, it’s essential to ensure you have enough savings to support yourself throughout your retirement, which could last 20 to 30 years.
To know how much you need to retire at 60, the general rule is to have around 20-25 times your annual retirement expenses.
If you’re aiming to retire at 60 and need a yearly income of $40,000 (£30,340), you should be looking to save between $800,000 (£606,800) and $1 million (£758,500). One top method to reach this goal is consistently putting aside 15% of your earnings. Start by increasing your 401(k) or IRA contributions, especially if your employer matches your contributions. Also, automate your savings for steady growth!
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Debt-Free Milestone
Taking care of any money you owe as you get closer to retirement is essential. You might still be paying off student loans, a car, or credit cards if you’re a millennial. But working on paying off these debts can aid you have more money to save for retirement.
Managing your debts well is essential for a strong financial future. Whether it’s student loans or other significant debts, paying them off on time is critical. Using methods like the snowball or avalanche can make this complete process easier. By getting rid of debt quickly, you can boost your retirement savings and reduce future money concerns.
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Homeownership and Mortgage Payoff
For millennials, the idea of owning a home is more than just a financial milestone. It’s a source of peace of mind, offering stability, the potential for increased value, and steady housing expenses after the mortgage is settled. For those planning to retire at 60, it’s crucial to prioritise paying off their mortgage before leaving the workforce, ensuring a secure and stress-free retirement.
Imagine the freedom of not worrying about a mortgage during retirement. If you still need to buy or own a home, consider whether it fits your finances. If it does, paying off your mortgage faster can ease financial stress during retirement.
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Living Within Your Means
Sticking to your budget is important to be ready for retirement. While it might not be as fun as hitting a savings target or paying off debt, a reasonable budget is vital to being financially secure. Following a budget prevents you from overspending as your income increases and helps you stay disciplined about saving money.
Adhering to your budget is essential because it helps you save money for unexpected costs and the future. Budgeting apps like Mint or YNAB (You Need A Budget) or simple spreadsheets can help keep track of your spending and discover ways to save more. Learning how to budget well when you’re young will assist you in managing your money better as you age.
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Avoid Revolving Credit Debt
Avoid getting trapped in high-interest credit card debt. It can seriously hurt your plans to save for retirement. When you can carry a balance on your credit cards, you end up paying a lot of extra money in interest, making it hard to save for the future.
To avoid making a mistake, you must prevent paying off credit card bills in full monthly. If you have a balance remaining, it’s best to pay it off as soon as possible, especially if it accumulates much interest. Additionally, consider transferring the balance to a card with a lower interest rate or consolidating your debts with a personal loan. The goal is to pay off high-interest debts before they become a big problem and stop you from saving for retirement.
Conclusion
Even though the challenges millennials encounter may appear overwhelming, the path to achieving success in retirement is clear. To achieve financial security in retirement at age 60, consistently save money, get rid of debt, pay off your mortgage, live within your means, and avoid high-interest credit card debt.
Effective retirement planning focuses on building good habits over time. Millennials can prepare for a secure and comfortable retirement by focusing on these five critical areas.
