How Should Millennials Save for Retirement?
Dear Carrie: I'm 28 and have a good job. My company offers a 401(k), but I haven't signed up yet -- mostly because I don't understand if it's the best move. I know I should be saving for retirement, but it seems so far in the future, and I have other things I need to cover. Also, I probably won't stay with this company forever, so it seems like maybe an individual retirement account is the better way to go. Can you help me decide? -- A Reader
Dear Reader: This is a great question, and I especially like the way that you are thoughtfully weighing your options. It's interesting that despite the stereotype that millennials focus on the here and now, an April 2019 survey from the Transamerica Center for Retirement Studies found that your generation is, in fact, getting a good start on retirement, with 74% saving through an employer-sponsored or similar plan.
To me, that makes a lot of sense. There's no better way to continue having the freedom you want than socking money away for the future. That's not to say it's easy. Student debt is an especially heavy burden on your generation -- and it's often a balancing act between paying today's bills and saving for tomorrow's goals.
But there is a way to do it, and the sooner you get started the better.
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Even with other money obligations tugging on you, I believe retirement needs to be a high priority. And contributing to a tax-advantaged 401(k) is a great way to get started right away. At your age, you can end up with a pretty good nest egg by saving just 10% to 15% of your annual salary during your working years. However, if you delay saving (or want to take an early retirement), that percentage will need to go up -- in a big way.
If your company matches your contributions, that should just seal the deal. Let's say it matches up to 6% of your salary. In this case, you'd want to contribute at least that much to get the full match. Otherwise, you'd be turning away free money! For the record, the 2019 401(k) annual contribution limit is $19,000.
And if you don't stay with your employer forever, don't worry. You'll likely have the option to take your 401(k) with you to your next job. If not, you can roll it over into an IRA when you leave.
However, do ask about the vesting schedule for the company match. Some 401(k) matching contributions vest immediately, but some companies require that you stay a certain number of years to get the entire match. That's something to keep in mind if you consider changing jobs. You won't forfeit your contributions regardless of how early you leave, but you might give up some -- or all -- of the employer contributions based on their vesting schedule. But regardless of vesting schedule, it still makes sense to save for your future.
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