It is never too early to save money for retirement

If you are in your 20s or early 30s, how much do you think you need to save for retirement to maintain your lifestyle? Would you choose $200,000, $500,000, $2 million, or $10 million? If you choose $2 million, you are right. How can the numbers above be so big? Ok, there are several factors driving this:


Longer life expectancy


Millennials live longer than their predecessors. Historically, the government calculated the retirement age to be 65 years old; however, if you were born in 1938 or later, the age will gradually increase. For those of us born after 1959, retirement is now 67 years old. And, given how many years we have reached that age, this number is likely to rise in the course of our lives.


Inflation


You may have heard this word before, it may confuse you. Think of inflation as an indicator of how much money a dollar can buy. For example, suppose today Starbucks iced tea price is $2.50. Next year, if the inflation rate rises by 2%, the same drink will now cost $2.55. Seeing inflation? It adds 5 cents to the cost of iced tea, which increases your expenses. At present, many economists believe that inflation will continue to increase, which means that today's one dollar will not equal the future one dollar, because the future one dollar will be lower.


Reduce pension plan


Pension plans used to be a common source of retirement income. This plan contains the money your employer will give you after you retire. So, depending on the time you work and the salary you earn, your employer calculates a specific amount that will be given to you at retirement. Today, although pension plans still exist, they are not common in the corporate world. A study by Towers Watson found that from 1998 to 2013, the number of Fortune 500 companies offering such programs fell by 86%, from 251 to 34.


Fewer social security benefits


Today, many people think that it is not uncommon for social security to cease to exist when it is time to retire. Although this may be an extreme, it will definitely change in the future. The problem is that the government may lack funds to pay in the future. If you look at your current salary stub, you will see a line item with social security. This is the money that is drawn from your salary and paid to social insurance. Social insurance will give the money to those who have already retired. The money you pay today is not reserved for you, but is immediately used to pay for those who are now receiving social security benefits. Any unused money will be deposited in the Social Security Trust, rather than being deposited into a personal account with your name. If the number of workers declines, or if the demographic structure changes (retired more people than work), it is easy to see that the social security benefits of the younger generation will decrease in the future.


How to start retirement savings


We recommend the following four steps to achieve retirement.

First, receive education. You must be sure to be informed before making any decisions.


Second, start saving. When you decide to start planning to retire, you must adjust your spending habits and start saving. If you find yourself unable to accumulate savings, adjust your budget accordingly.


Third, once you have received education and adopted a savings strategy, you can finally take advantage of 401K. 401K allows you to donate money from your salary to a retirement fund, and your employer usually matches your donation. In addition, it also reduces your taxable income, because you invest 401K of money before you take it out.


Finally, make money in your 401K growth. Many millennials are reluctant to invest money in the stock market. This is a mistake. By investing their money in "an adult equivalent to a piggy bank," they give up a lot of potential gains. A diversified portfolio will bring countless benefits to your retirement fund as it will ultimately reduce your time before retirement.

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