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Millennial Money

Young & Scrappy -- And Saving for Retirement

No excuses. You don’t need a 401(k) or employer match to save.

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Last spring, I packed my bags and headed to Denver for my first reporting job after college. We had everything you might expect at a scrappy media start-up with four reporters, including craft beer in the mini fridge. But like a lot of cash-strapped start-ups, the company couldn’t offer much in the way of employee benefits.

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I didn’t care about any of that when I took the job. If I could pay the bills and start chipping away at my student loans, why the heck would I think about saving for retirement?

Here’s why: Our generation is almost certain to live longer than our parents, meaning our money has to last longer and clear more hurdles on the way.

For starters, no one really knows what Social Security is going to look like in 30 or 40 years. No matter how Congress adjusts the system over the next decade, younger workers shouldn’t count on receiving the same benefits as their parents. “I tell younger investors to plan as if Social Security will be nonexistent when they retire,” says Ryan Fuchs, a certified financial planner in Little Rock, Ark. “I don’t believe that will be the case. But if they can create a successful plan without it, then any money they do receive will be icing on the cake.”

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The time value of money. After paying rent and maybe student loans, finding the money to save for retirement might seem like an impossible task. In a 2017 survey from GOBankingRates, more than 60% of millennials reported having less than $1,000 in a savings account, and 46% of res­pondents ages 18 to 24 said they had nothing saved. But time is the most valuable resource you have, and you happen to have a lot of it right now.

“When we meet with younger clients, we’ll use simple calculations to show what saving a few hundred dollars a month can do for a portfolio when you extend that growth over 40 years,” says Nate Creviston, a CFP in Shaker Heights, Ohio. If you set aside $200 a month and earn an average annual return of 7%, you’ll have $480,000 after 40 years. Boost contributions every time you get a raise, and you’ll have much more than that. Eventually, you should aim to save 15% of income.

Putting aside the question of Social Security, the big difference in the retirement outlook between past generations and our own is the shift away from traditional pensions. Most private employers have moved toward defined contribution plans, such as 401(k)s, which allow workers to contribute a certain amount of their paycheck into a pretax account. According to Rui Yao, a personal finance professor at the University of Missouri, that shift began right before Generation X joined the workforce and culminated with millennials.

If your employer offers a 401(k) plan and will match your contributions up to a certain percentage of your pay, take it. It’s the closest you’ll come to getting free money. Even without the match, a 401(k) is a strong starting point as long as it offers a diversified selection of mutual funds that aren’t hobbled by exorbitant fees. (Brightscope.com offers a tool that will rank your 401(k) against its peers.)

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If you’re self-employed or your employer doesn’t offer a 401(k), your next best bet may be a Roth IRA. In 2019, you can contribute up to $6,000 to a Roth, as long as your income is less than the IRS’s thresholds. The money isn’t tax-deductible, but as long as you wait until you’re at least 59½, all withdrawals—including earnings—will be tax-free, and you can withdraw contributions at any time without paying taxes or penalties. Many online brokers offer tools to help you create a portfolio and set up automatic monthly contributions, which makes it easier to start saving as a habit (see The Best Online Brokers).

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As for me, I’m taking advantage of the Kiplinger 401(k) plan. I’m fortunate to have that option, but retirement isn’t just for the lucky ones. Start saving now, and work toward the future you want. You’ll thank yourself later.