Why save for retirement? Of course, this is a critical part of anybody’s financial journey as soon as they start work. However, today’s retirement landscape looks a lot different than it did even 20 years ago. This is perhaps why, according to a recent report, Millennials are ahead of Boomers in terms of retirement savings. In their mid-20s, Millennials have put away what Baby Boomers did not until their 30s. And Millennials are also ahead of Gen Xers at this stage of their lives.
It’s unnecessary, though, because Millennials are better savers than previous generations. One resounding reason Millennials have larger retirement accounts is that, unlike older generations, they are not guaranteed a pension upon retirement. This shines the spotlight on the importance of retirement benefits for everyone.
Retirement Benefits and Generational Differences
Once upon a time, workers were pretty much guaranteed some form of retirement income once they reached a certain age and/or a certain number of years of work. According to many experts, Baby Boomers felt that retirement would just “be there” for them. They were thus not necessarily forced to contemplate the importance of retirement benefits. It was just assumed they’d have some.
Millennials, on the other hand, face an entirely different prospect. Given where they are, given what they’ve gone through, such as the great recession, for example, and Covid, financially speaking, they are not in the greatest of places. And while yes, Millennials do make up the bulk of the workforce currently, it doesn’t mean that there is retirement in place for all of those workers.
Then, of course, you have to factor in student debt. Millennials are paying nearly 100% more than Boomers did just out of college. This student debt is becoming a real burden for many out in the workforce who are now trying to purchase homes, raise families, and live the lifestyle they want.
Understanding the True Importance of Retirement Benefits
So why exactly are retirement benefits significant? How should retirement benefits factor into your decision of where to work? And if there is no pension plan, what should your next move be in terms of planning for retirement? Below are a few strategies and tips to consider as you navigate your career journey and eventual retirement.
Look into individual retirement accounts (IRAs)
Most IRA plans allow you to put up to $6000 a year into them. If you are over 50, you can contribute more. There are also many tax advantages associated with IRAs for retirement. You can either use a traditional IRA or a Roth IRA. Tax benefits and tax treatments will depend on the type you choose. This is perhaps one of the easiest ways to save for your retirement.
Remember not to touch your retirement savings
Regardless of what type of retirement plan you enroll in, you want to ensure you do not touch the funds that go into that plan. Remember, this is your future. Once you’re no longer working, this is where the bulk of your income will come from, primarily if your employer does not provide a pension plan. Having a hands-off mentality when it comes to retirement accounts is imperative.
Have a realistic scope of your time horizon
Given your current age and you’re desired and/or anticipated retirement age, create a plan that makes sense. So, for example, if you’re still relatively young and have a few decades of work left, your plan might be a bit riskier than if you are older and are facing imminent retirement. You also want to consider inflation. What types of investments will ultimately outpace inflation? For older people, your retirement investment plan should focus on less risky securities that will help provide an income for the rest of their life.
Devise a budget for your retirement years
While certainly, you can’t predict the future, you can create some sort of plan and thus a budget for your “twilight years.” Be realistic about how much you will need to live, how much debt you have, and how much money you will have upon retirement. Indeed, this budget can change as you get into your retirement, but at least it’s a blueprint from which you can start.
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