It is a common mindset among the young people that it’s too early to start worrying about retirement. After all, they have just begun to work! But that is not the way to go. The youths need to understand that time has come when the benefits that retirees were entitled to are no longer guaranteed. They are not as reliable as they were back in those days. Since the future of social security fund and the Medicare is riddled with uncertainty, that is reason enough for the youth to worry about their life after retirement.
A report by the Social Security Administration of the US indicates that there it is only after 2033 that they will have revenue enough to pay 75% of the benefits scheduled. In the yesteryears, one was eligible for social security even at the age of 40. To stay secure, future retirees may need to save more than their predecessors. Also, there is a high likelihood that they will need to save more for their health care.
Also, the traditional pension plans have declined sharply. The benefits now stand roughly above 25,000 up from about 112,000 recorded in the late 1980s. That is still not the main problem. They are usually closed to new participants. And since the youth have a tendency of hopping from one job to another, they rarely qualify. Studies show that 70% of the youths do not take a maximum of 2 years on a job since they like experimenting. Two years is not enough for them to qualify for the pension scheme or even benefit the 401k plan from their employees. A study conducted by Forbes reveals that 55% of the generation Y have not even retirement yet started saving. What shocks, even more, is that 64% of the youths have not even given it a thought. But the knowledge that 73% think they are not saving enough gives some hope.
Now, what should you do as a young person to prepare yourself for retirement? Following are the moves need to take to secure your life after employment:
1. Calculate How Much You Need
Take your time and think about your life. What do you need to live a complete life without spending less or more than required? List the essentials and non-essentials on a piece of paper or notepad. Look closely and do away with what you can survive without. Get the things that you do occasionally and slash the budget. Spending on alcohol is one of them.
2. Cutting Mindless Spending
The youth is the stage whereby they tend to lead a lavish lifestyle. Partying all the time and engaging in all money-sucking affairs. Do you think you are in this category? This is what you should do. Consider preparing a budget. Do not stop your social life; just do whatever you do but with moderation. With a budget, you limit the temptations to spend more than what you have allocated to entertainment.
Ensure that you devote to those things that matter. For example, training yourself to stay without subscribing for the TV will save you a few bucks. In any case, it is possible to enjoy the TV without spending much on it. Cut the amount you spend on non-assets like acquiring any new technology (e.g. a new version of your phone). However, it is important to understand that it requires discipline and self-control to achieve it. The key here is, strive always to spend less on non-essentials or do away with them if you can.
3. Start Saving and Investing Now
No doubt, once you have stopped being extravagant, you will have extra money to save. Identify a financial institution with a high savings interest rate and open an Individual Retirement Account (IRA). Both traditional and Roth IRA are OK. Compound interest has the power to multiply your money very fast. Suppose X starts saving early and dedicates $800 every year until his turns 38. Then Y waits until it’s too late and saves the same amount every year but at 38 years for the next 30 years. Assuming that both earn interest of 8% annually, at 70 years, X would have accumulated more money. It turns out X would have about 40% more money than Y. That is already proof enough that the earlier you begin saving, the better.
Saving also allows you accumulate enough money to start an investment. Whatever project you invest your money on will generate you more income probably the rest of your days.
Financial knowledge is necessary when saving. Diversification in your investments is crucial to ensure the security of your funds. It reduces the risk levels and also increases the earning potential.
4. Clear all Debts
You cannot save or invest anything if you have a debt that you need to pay. Even more, the bank deducts money from your salary during payment. Make sure that you pay the debts as soon as possible so that you can have the freedom to save. You can achieve this by dedicating every penny that lands in your hands for the payment of the debt. Another strategy would require cutting on unnecessary spending. Ensure that you only spend your money on only those things that you cannot survive without. This calls for a lot of self-sacrifices since it involves editing your lifestyle. You might also consider getting an alternative source of income. Debt should not become the hindrance in the pursuit of your goal.
Again, ensure that you do not get into debts to pay for those things that are not urgent. If you must, only a hospital should prompt you to get a loan. How to handle health issues comes below
5. Confirm if Your Employer Has a Pension Plan
Finding a company with a plan for the employees is common. Make sure that you are covered if it exists and get to know how it works. Understand what happens to the benefits earned upon retirement. Get the documentation related to the benefits and know exactly how much your benefit is worth.
6. Discipline Yourself
It reaches a time when you feel that you want to do what other people are doing. This is extremely common among the youth. You forget that you have set some goals that you need to stick to without fail. Self-control is highly required here. To remain steadfast in your decisions, learn to stick to your plans. Do what you have prepared to do when you have planned for it and do not get swayed away by external forces. What this mean is that you won’t fall into the temptation of spending beyond what you’ve allocated for that particular thing in your budget. Again, it requires time and sacrifice to learn how to remain disciplined.
7. Advance Your Career
Normally, the more skills you possess, the better your salary. Increase the potential of your earning by going for that degree or masters. Attain more certificates and your employer will offer as better salary. Do whatever it is that you aspire and think will give you an edge over your workmates. Go for it. With more skills, you remain more employable. A better salary means the ability to receive a better salary and to save more for the days after retirement.
8. Be Aware of Retirement Needs
Financial experts estimate that high and low earners require not less than 70% and 90% respectively of the income earned before retirement to maintain their living standards after retirement. That only indicates that retirement is an expensive undertaking that requires early plans. That said, it is possible to project how much you will need once you stop working.
9. Consider Your Employer’s Retirement Savings Plan
Some employers have a retirement savings plan for their employees e.g. 401(k). The plan requires you to sign up and contribute. The contributions are automatically deducted, and that lowers the taxes you are required to pay. That makes your savings accumulate very fast due to the power of compound interest and also the tax deferrals from income not subjected to tax. Get to know the limit set by your employer for him to match your contribution with their funds.
10. Know About Your Social Security Benefits
Contact the social security administration to enquire about the status of your benefits. Typically, the social security pays up to about 40% of what you earn until retirement.
11. Request Your Employer to Start a Plan
If you find out if your employer does not have a pension plan for the employees, you may propose the idea. But you need to ensure that whatever you are proposing will benefit both you and the employer. You may find he/she was thinking about it only that he did not know how the employees would take it. It is very rare to find an employer turn down a plan that he thinks will benefit him.
12. Get a Healthy Care Plan
Getting a medical cover remains one of the best strategies to use if you are not planning to spend all your cash on medical bills after retirement. Research around and get a cover that is suitable for you. Remember that illnesses are unpredictable. If you are covered early enough, you will not spend all your savings on bills. What you save will keep on adding up in your account until you have retired.
By now you know why you should start preparing for retirement as a youth. Do not wait until it is too late to start rushing. Remember that you will not remain energetic forever. The more you get old, the more the attention you will need. Let these be the guiding principles from now on. If you wish to lead a better after retirement life, go ahead and implement the above tips beginning now.