The apparently endless decline of the world economy could make retirement a bleak prospect for young people entering the world of work, but just how bad is it?
Studies are finding that Generation Y and all generations that follow will need more retirement to live on than their parents. Generation Y is defined as anyone currently aged 18 to 30 and projections show that they will need at least 18.7 times whatever their final pay turns out to be just to live during the retirement years.
This is a startling forecast. Combined with the fact that employers are giving less retirement help to this age bracket and the government may all but run out of the money that current retirees are enjoying from Social Security, saving is really the only option.
The downside is that this is also the generation that took on massive amounts of debt to make it through college. Most have graduated only to feel the sting of a recession that provides them with no jobs suitable for their area of study.
This means that pennies saved are going to pay exorbitant student loan payments, not toward retirement.
In fact, most of Generation Y is more concerned about living from paycheck to paycheck rather than putting back money for a rainy day. Some simply have no other options.
But there’s a tremendous need to create options. Young professionals and even those that have yet to find positions in their chosen careers need to open a savings plan now.
The sooner you open a high-yield savings account such as a money market account or even a CD, the longer that money will have to grow. You may not have much now, but leave a small amount of money in an account for a couple of decades and the interest really adds up.
Take advantage of any employer help that is offered, even if it doesn’t seem like much.
Some employers will do 401(k) contribution matching up to $2,000 a year. This means that a 25-year old will only need to put back about $104 a week to end up with $2 million by the time they’re 65.
Supplement your savings with a Roth IRA or 401(k). This allows you to prepay any taxes on retirement savings since the younger generation is in a lower tax bracket. This gives up the current tax deduction but you end up with tax-free retirement money.
Avoid high investment fees and other expenses that can suck your investments dry. Consider index funds, which charge less annual fees than managed mutual funds.
Be mindful of current expenses you can cut back on that can be going toward retirement savings.
A $60 per month gym membership, for example, is $720 a year that could be going to retirement. Figure out where you can whittle back expenses so you can more easily save money.
Although you may be fully aware of personal finance concepts, this doesn’t mean that your knowledge will save you money. Action is required to save a sufficient amount of retirement income, so act now. The sooner you do, the more comfortable your retirement will be.
Compare other savings account options at websites like Money Supermarket. You may be surprised to learn how easy it is to take advantage of fixed rate bonds, cash ISAs and basic savings accounts.
No matter what type of job or savings account you currently have, it’s important to develop the habit of putting money back every week or at least every month. This will come in handy when you do end up with a higher paying job and are able to put back even more.