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Millennials -- How will you be able to retire?

There's some good news for you


Being a millennial isn’t easy these days. When you graduated from college and entered the job market, it was during the most severe financial crisis since the Great Depression. Then you got labeled as entitled and lazy, and accused of being incapable of staying in a job more than a year. And to make matters worse, odds are you have considerable student loan debt to pay back.

As a result, it will be absolutely essential to start saving even earlier in your career for retirement. Unlike your parents, the baby boomers, you may not be able to rely on Social Security or Medicare by the time you reach retirement age.

Here’s the good news: if you start saving now, you will more than likely have more money in retirement than the generation right in front of you, Generation X, who are busy playing catch up with their retirement accounts after two brutal bear markets over the last 16 years.

Here are some goals to strive for to help you achieve a better financial future than you may have anticipated. Even implementing a few of these items will go a long way towards securing a strong retirement.

First, pay off the balance on your credit cards every month on time, to avoid paying double-digit interest rates for being late. Second, pay down those old student loans as fast as possible. The interest rates on them are just too high. Take your annual bonus from work or any other windfall and apply it immediately toward paying off all your student loan debt.

You will also need to contribute as much as possible to your 401K plan at work. If you can afford to contribute 10 percent from your paycheck every month, do it. Remember that any contributions you make will help reduce your taxable income – a great incentive for saving.

Hopefully your employer has a few good low-fee stock index fund options in their 401K plan to choose from. If you contribute to a 401K every two weeks you are dollar cost averaging your way into the stock market all the time, which is how you can take advantage of down or bear markets.

Reinvesting all the dividends from your mutual funds is also an excellent way to dollar cost average in down markets. Remember, you only care what your retirement account is worth way down the road. An added bonus is that your employer should match at least a portion of every paycheck, which is free money.

If you have any money left over after maxing out your 401K at work, consider opening a Roth IRA and contributing the maximum amount of $5,500 a year. The best thing about a Roth is that when you withdraw this money after age 59½ it is completely tax free, unlike the withdrawals from a regular IRA, which get taxed as ordinary income. This is a huge advantage. At some point in your career your earnings will disqualify you from fully contributing to a Roth IRA, which is limited to those earning $116,000 as a single head of household or $183,000 for married couples. At that point, you can open up a regular IRA and have both retirement accounts.

Buying a home is also a good way to diversify your assets and leverage your overall wealth. Despite the recent interest rate hike, borrowing money is still incredibly cheap, with 30-year mortgage rates back below 4 percent.

If you can manage to do most of the things on this list, you will be way ahead of the game and able to take advantage of the compounding magic of money over a very long period of time.

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Fred Taylor

Fred Taylor is president and co-founder of Northstar Investment Advisors, LLC. The firm specializes in managing personalized investment portfolios for individuals, families, and retirees with a focus on income generation. He is a member of the Colorado Forum and also served as an economic advisor to Colorado Governor Bill Ritter from 2008 to 2010.

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