Millennial Retirement: How to Hack the Obsolete American Dream
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If you’re like many millennials, you didn’t get a financial education growing up. Not only that, the instability of the market coupled with the surmounting debt acquired from student loans probably gives you a panic attack. Reading articles about how to manage your finances and plan for retirement is a good start, but you’ll need more than know-how to make — and save — enough money for the future.
These basics tricks can help you begin preparing for life after your YOLO period, which we hope is soon because YOLO is stupid.
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Emergency Savings Account
The rainy day fund. If you don't have one, you should. Most people living paycheck-to-paycheck are wiped out because they fail to prepare for unforeseen events. Rick Friedman, senior vice president and financial advisor for RBC Wealth Management, recommends saving a little bit all the time so you don't even notice that you're putting money away.
To do this, look at your paycheck and then take out 10 to 20 percent for emergencies each month. Having this will prevent you from needing to dip into your Roth IRA or 401k, where you could be penalized for taking out money. So it's kind of like a safety net for your retirement plan.
Does this mean you'll forego brunch once a month? Possibly, but what you won't miss out on is having a car when your engine explodes unexpectedly.
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Take Advantage of 401k Freebies
Since millennials live in a gig economy it's hard for us to build our wealth in the same way our parents did. If you're working at a company that offers a 401k retirement plan, definitely take advantage of how cushy and lucrative this can be down the line.
The best way to do this is to contribute the maximum amount you can. For 2018, that would have been $18,500. Unfortunately, that's probably a bit out of reach for most people. Instead, if your company provides a matching contribution, hit that goal so you can maximize the amount of money you're putting away. This will help you beef up your profits until you can hit the max number.
Above all else, don't be like the dude who cashes out his 401k to throw a killer party. Unless you're sure you won't live long enough to need it. Then party on.
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When it comes to a 401k, there are myriad penalties and tax deductions you'll be dinged with if you withdraw before you're 59 1/2. Because of this, the Roth IRA is a killer option because it doesn't provide a current tax deduction.
A Roth IRA can act as a rainy day fund or help you purchase your first home. Realistically, you don't want to withdraw before you need to, but in the case that you do, the Roth IRA is the way to go.
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If you've gone to college, you're probably swimming in student loan debt. Which is fine in a way since our entire generation is suffering like this in one way or another. But when your student loan debt compounds with real-life debt, you're in trouble.
One way to manage this is by using your Emergency Savings Account to begin to pay off any and all debt. Once you're making money, you should have a goal to erase debt and pay off your loans so any money you're saving can simply be saved. Otherwise, you're just moving money around with very little payoff.
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Building Your Net Worth
Realistically, you can't focus on retirement if you don't have any money saved. So if you've got a 401k, a Roth IRA, and an Emergency Savings Account, now what?
If you somehow have money left, there are a couple of options you could go with. First of all, invest in real estate. Owning property is a surefire way to compound the growth of your investment. Secondly, you can invest this money in a taxable investment portfolio (aka stocks). We recommend meeting with an expert who can look at the money you have and recommend where and how to spend it to get the most bang for your buck.
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Do you have any other tips or tricks for retirement planning that we haven’t touched on? Let us know in the comments!