Imagine expecting to need more than $1.6 million to retire comfortably but only having saved $88,400. This startling reality was revealed in a Planning and Progress Study from Northwestern Mutual that found both Gen Zers and millennials vastly underestimate how much they need for a secure retirement.
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The gap between the retirement savings goal and what has actually been saved by younger Americans is wide, but here are four ways to help millennials and Gen Zers get back on track with retirement savings goals.
1. Start Early if Possible
Northwestern Mutual’s survey found that the average American begins saving for retirement at age 31. But what if you could start a decade earlier, at 21? Starting early allows your investments to compound over a more extended period, dramatically increasing your savings.
Starting early can also mean setting aside smaller amounts regularly, making it less burdensome on your monthly budget.
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2. Prioritize and Automate Savings
Prioritizing your retirement savings may sound like a no-brainer, but many people struggle with it. It’s easy to get caught up in current expenses and forget about future needs. To combat this, make retirement savings a non-negotiable part of your budget. Treat it like a bill that must be paid every month.
Set up automatic transfers from your checking account to your retirement account. This way, you’ll save consistently without having to think about it. Many employers offer automatic payroll deductions for retirement accounts like 401(k)s, making it even easier.
3. Minimize Taxes Paid on Retirement Savings
Taxes can take a big bite out of your retirement savings, so it’s crucial to have a strategy to minimize them. According to the Harris Poll, only 30% of Americans have a plan to reduce the taxes they pay on their retirement savings. Don’t be part of the 70% who leave money on the table.
Consider contributing to tax-advantaged accounts like Roth IRAs or traditional 401(k)s. With a Roth IRA, your contributions are made with after-tax dollars, but your withdrawals in retirement are tax-free. On the other hand, traditional 401(k) contributions are made with pre-tax dollars, reducing your taxable income now — but you will pay taxes on withdrawals in retirement.
Consulting with a tax advisor who can provide personalized strategies to help you minimize your tax burden (and maximize your retirement savings) is wise.
4. Remain Consistent
Consistency is key when it comes to retirement savings. If you’re already saving, keep up the good work. Regular contributions, no matter how small, add up over time and keep you on course to meet your retirement goals.
Market fluctuations can be unsettling, but remain focused on your long-term objectives. Avoid the temptation to pull out of the market during downturns. Instead, consider these periods as opportunities to buy investments at lower prices.
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This article originally appeared on GOBankingRates.com: Millennials Are $1 Million Short on Retirement Goals: 4 Ways To Close the Gap
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