6 Things Every Millennial Should Know About Saving For Retirement

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“I’m going to have to work until the day I die!”

For many millennials dealing with crippling student loan debt and stagnant wages, retirement seems more like a pipe dream than an eventual reality.

Current data also provides little hope; a new study projected new grads won’t retire until age 75 due to factors such as high student loan debt, rising rents, and a general fear of investing.

The good news? You can create a plan now to ensure that you do retire well before age 75 — and one that you’ll enjoy that doesn’t include eating cat food.

Saving For Retirement: Then and Now

In the past, baby boomers would work for the same company for decades, collect a pension, and retire at age 65. But in 2008, everything changed.

Boomers were getting laid off and seeing their entire retirement portfolios tank in the stock market. During this time, millennials were acquiring more educational debt than ever to pursue their own dreams. And when they graduated, the economy was in a recession with high unemployment rates and low wages.

Many millennials also had a front row seat to the demise of their parents’ retirement security. Because of this, the millennial generation is inherently distrustful of the stock market and has been hoarding cash instead of investing for the future.

While cash may seem like a safe alternative, most banks offer paltry interest rates that are likely not going to keep up with inflation. Investing can be a way to build wealth and beat the cost of inflation — unfortunately, many millennials are opting out of the system altogether.

if you want to retire some day, here are five things to know:

1. Paying Off Debt Should Be Priority No. 1

One of the best ways to prepare for retirement is to create a plan to get out of debt. Not paying down your debt in a timely manner can mean spending more money on interest — money that could be freed up to save for retirement.

I’m sure you don’t want to be paying for your student loans as you near retirement age. So it’s crucial to pay off your debt as soon as you can.

To save the most money and pay off debt quickly, the “debt avalanche” method is an effective strategy. While many experts believe in the power of using the debt snowball method, which focuses on paying the smallest balance first to gain small wins and motivation, the avalanche works best for saving money on interest and paying down debt quickly.

In order to create a plan to get out of debt:

  • List all of your debt and interest rates
  • Prioritize the list from highest to lowest rate
  • Look for ways to save money on the three biggest expenses
  • Side hustle to earn more money
  • Calculate your desired debt-free date

Paying off debt has a positive impact on your overall net worth and helps you save money on interest. Once you’re done paying off debt, you can start investing the same amount of money you put toward debt and fund your retirement instead.

This doesn’t mean that you should wait to save for retirement until you are debt-free, it just means you should make this your number one priority.

2. Say Yes to Workplace Retirement Plans

Many employers offer a 401k or 403b retirement plan as a benefit to employees. Some employers may even offer a company match, meaning they will match your contributions up to a certain percentage.

An employer match is essentially free money and incentive for you to stay, so enjoy it while you can. It’s one of the perks of the job and if you choose not to contribute, you are effectively lowering your salary.

If your employer doesn’t offer a match, consider contributing fifteen percent of your income to your retirement account. That may seem like a lot, but you’re saving for your future! In 2015, employees can contribute a maximum of $18,000 per year.

“If you truly want to save for retirement, aim to save 15 percent or more of your salary. As a millennial, you can keep your expenses low and avoid lifestyle creep by putting more away towards retirement,” explained LaTisha Styles, millennial money expert at YoungFinances.

If 15 percent isn’t doable, contribute what you can — every bit counts.

Through investing in these retirement vehicles — which are tax-deferred — you can also save money on your taxes now. Your 401k contributions lower your taxable income, meaning you’ll pay less income tax.

The catch? You will end up paying taxes on these contributions when you withdraw the funds in retirement. However, most retirees end up being in a lower tax bracket during retirement than at the height of their careers, so you will probably be taxed at a lower rate.

As a millennial, it’s likely you’ll have several jobs throughout your career. Millennials are known as job-hoppers — which isn’t necessarily a bad thing — but you don’t want to leave your 401(k) money behind. As you change employers, be sure to rollover your 401(k) to your current employer or into an IRA.

In order to rollover your 401(k), talk to your current 401(k) administrator (if you don’t know, talk to HR) and fill out the required paperwork from your old plan to facilitate the rollover.

3. Open an IRA

While contributing to your employer’s 401k is a great start, it’s a good idea to diversify your investments and open up an IRA as well. An IRA is an Individual Retirement Account — which is not related to your employer. There are two types of IRAs, Traditional and Roth. Each plan has their own unique tax advantages.

A Traditional IRA is a good option for people at all income levels. It allows you to make tax-deferred contributions just like a 401k. While you can save money on your taxes now with a Traditional IRA, you will have to pay taxes on that income when you withdraw your funds at retirement age.

A Roth IRA is similar retirement vehicle, with some restrictions. Single filers must have a modified adjusted gross income (MAGI) of less than $131,000. Your modified adjusted gross income is your adjusted gross income (which can typically be found on your tax return) with the addition of several deductions, such as student loan interest, tuition fees, and more.

Through a Roth IRA, you can contribute after-tax dollars and your contributions will grow tax-free. Bonus: you can make tax-free and penalty-free withdrawals after age 59 ½.

Both Traditional and Roth IRAs have annual contribution limits of $5,500 for those under the age of 50. However, the limit may change each year, depending on IRS rules.

Which one should you use? it depends if you want to reap tax benefits now or later, though a Roth IRA can be a good choice if you are within the income limits — what’s not to love about tax-free withdrawals?

4. Robo-Advisors Take the Pain Out of Investing

Investing for your future might seem scary, difficult, boring, or all of the above. Luckily, there’s a new wave of robo-advisors that are making it easier for millennials to invest their money and  build wealth for the future.

Typically, the millennial generation has been excluded from the traditional financial services market. Many financial advisors require high balances (sometimes $250,000 or more) and typically charge one percent of assets.

Robo-advisors are automated investment services that help you maximize returns and minimize losses.  They’re quickly filling a unique niche, making investing more accessible to younger generations with fewer financial resources.

Some robo-advisors, such as Betterment, have no minimum deposit or balance requirements. Others, such as Wealthfront, do not charge an account management fee for accounts under $10,000.

To get started with a robo-advisor, you’ll typically take a short survey about your risk tolerance and financial goals.

Your risk tolerance takes into account your current financial situation, goals, as well as your comfort with risk. Some investors are more conservative, while others may be more aggressive.

Robo-advisors can also help you save money on fees.

Traditional financial advisors typically charge one percent of your assets, where as a robo-advisor can charge anywhere from 0.15 to 0.35 percent, depending on your account balance.

Based on Betterment’s calculator, if you had an account balance of $100,000, you’d pay $83 per month to a financial advisor, but with Betterment you’d only pay $13 per month.

5. Compound Interest Is Your Friend

When you’re in student loan debt, retirement can seem like the very last thing on your priority list. But the perfect time to start saving for retirement is when you’re young. Two words: compound interest.

Essentially, compound interest is interest that earns interest. Got that?

Here’s Investopedia’s definition:

“Interest calculated on the initial principal and also on the accumulated interest of previous periods of a deposit or loan. Compound interest can be thought of as “interest on interest,” and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount.”

Can you say money on top of money? Here’s an example for you:

Let’s say you invest $5,000 at age 25 at an 8% annual return, compounded monthly. Forty years later at age 65, you’ll have $121,366.93 — without adding one cent more than the original $5,000.

If you wait until you are 30 to make that $5,000 deposit, you’ll only have $81,462.75 by retirement age. That’s a huge difference. Compound interest and time are your friends. Use them wisely.

6. Fees Are Not

When you are saving for retirement, it’s crucial to understand how much you are paying in fees over time. You will likely be saving for several decades, so what seems like a small fee today can compound over decades and result in a huge chunk taken out of your nest egg.

To understand exactly how much you are paying in fees — and find low-fee alternatives — you can use services like FeeX.

How Much to Save For Retirement?

Now, the inevitable question: how much do you actually need to save for retirement? Unfortunately, there’s no cookie-cutter answer. How much you need to save depends on your goals, lifestyle, cost of living, etc.

Fidelity Investments suggests you save 8 times your ending salary for retirement. So if retire from a salary of $75,000, you’ll want to save at least $600,000. That seems like a huge chunk of change, but remember the power of compound interest and employer matches!

By paying off debt and contributing to your retirement now, you can set yourself up for a nice retirement. Start now — your future will thank you.

Interested in refinancing student loans?

Here are the top 6 lenders of 2019!
LenderVariable APREligible Degrees 
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1 Important Disclosures for Earnest.

Earnest Disclosures

To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.

Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.

Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.

The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at hello@earnest.com, or call 888-601-2801 for more information on ourstudent loan refinance product.

© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.

2 Important Disclosures for Laurel Road.

Laurel Road Disclosures

APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.

Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.

However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.

3 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student loan Refinance:
    Fixed rates from 3.899% APR to 7.979% APR (with AutoPay). Variable rates from 2.470% APR to 6.990% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.470% APR assumes current 1 month LIBOR rate of 2.30% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score.
  2. Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

4 Important Disclosures for LendKey.

LendKey Disclosures

Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.

5 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.

All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.

6 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate Disclosure: Variable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of January 1, 2019, the one-month LIBOR rate is 2.51%. Variable interest rates range from 3.01%-9.75% (3.01%-9.75% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.90%-8.99% (3.90%-8.99% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled. Applicants with an Associate’s degree or with no degree must have made at least 12 qualifying payments after leaving school. Qualifying payments are the most recent on time and consecutive payments of principal and interest on the loans being refinanced. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a cosigner who is a U.S. citizen or permanent resident. The cosigner (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a cosigner will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.

2.57% – 6.97%1Undergrad
& Graduate

Visit Earnest

2.47% – 6.99%3Undergrad
& Graduate

Visit SoFi

2.68% – 8.77%4Undergrad
& Graduate

Visit Lendkey

3.24% – 6.66%2Undergrad
& Graduate

Visit Laurel Road

2.61% – 7.35%5Undergrad
& Graduate

Visit CommonBond

3.01% – 9.75%6Undergrad
& Graduate

Visit Citizens

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

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