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5 Retirement Planning Tips for Young Professionals

February 11, 2019

Congratulations! You landed your first job and you’re settling in, putting your knowledge, skills and creativity to use in the ways you’ve always dreamed about. Believe it or not, now it’s time to start planning for retirement.

It’s important to take some time to imagine how you want your life to look when you are in your 50s, 60s and beyond, and to put pencil to paper to see how much money that lifestyle will realistically cost. Although it might be tempting to wait to start saving until your 30s because retirement seems so far in the future, now is the best time to planning in order to be able to attain your desired lifestyle; as a young professional in your 20s, you have more time now than you will ever have to make your money work for you.

Here are five tips for making the most of your hard-earned money:

1. Start early.
Procrastination is one of the worst mistakes to make when planning for retirement. By waiting to begin saving until later in life, you lose out on the benefits of years of compound interest that adds up over time. Saving or investing less money over a longer period of time is more beneficial — and sustainable — than investing more money in a short period of time.

2. Set realistic expectations.
Retirement planning is more than a one-time activity; in reality, it’s a continuous process that requires ample attention over the course of one’s lifetime. It won’t be accomplished overnight. By being knowledgeable about how you are investing your money and staying up-to-date with the latest information about your money and the plans you are investing it in, you can feel more in-control of your financial decisions and understand what is realistic over time as you work toward your goals.

3. Have patience.
The going is slow, at first. Keep your eyes fixed on your ultimate goal, and remember the beauty of compound interest is that as you get older, you will begin to earn more and more money. Be encouraged by the fact that with each day, you are working towards having more money than you did the day before. And all of it will help provide you with the life you are working towards.

4. Make a plan. Then monitor it.
You should create a budget based on your monthly income and bills, including rent, groceries, utilities, loans and any other necessities. Even before you put money towards these needs, however, you should strive to set aside money in a separate account or in a 401k for your future. We recommend putting aside 10 to 15 percent of each paycheck for retirement, increasing that amount to 20 percent when in your 30s.

The most important aspect of having a plan is to actually monitor your progress over time. As your life changes, it is important to understand how to prioritize those changing needs. For example, when a couple begins having children, they oftentimes prioritize college savings above their own retirement savings, reducing the amount they are contributing to a 401K or other retirement account. Unlike college tuition programs, retirement does not offer such assistance, grant, or scholarship program to help one meet their retirement expense needs. As a result, it may make sense to maintain retirement savings as a priority even during the child-rearing years.

5. Put adequate protections in place.
Not all protections focus on the use of insurance. While it is important to consider the many assets you should protect with insurance (car, home, income, life), not all protections need to be purchased. Working with an advisor to create a diversified portfolio with also help protect your money, spreading investment risk across numerous asset classes. In addition, having an emergency fund is one the most important protections you can put in place early on. Save at least 3-6 months of expenses in an interest-bearing savings account for unexpected expenses. This will save you from having to use a credit card and opening yourself up to the many temptations and risks of debt accumulation.

Although a Scottrade study reports 60 percent of Millennials haven’t thought about planning for retirement, you don’t have to be one of them. If you would like to discuss these or other financial planning and wealth management strategies with a financial planner, contact Cuba Financial Group at (573) 334-7000.