Millennials Can Create a Lifelong Wealth Plan
For a highly educated generation, Millennials show a surprising ineptitude in certain areas of money management. And a generation that lacks secure pensions will certainly need to prepare for their twilight years.
The good news is that Millennials have shown the greatest increase in their savings rate compared with any other generation, according to new data from Fidelity. The typical 20-something is now stashing away 7.5% of income vs. just 5.8% in 2013.
Generation X and Boomers are still saving larger percentages of salary but have not stepped up their contributions by nearly as much. There is an added complication for Millennials - student loans and other sources of long-term debt. Without the financial knowledge to dig out of their debt hole, this could prove to be a permanent setback.
According to the Global Financial Literacy Excellence Center at the George Washington University, young adults with a college degree are much more likely than previous generations to start their economic life in debt.
Young people saving for retirement do have one big advantage -- time. With traditional pensions disappearing and Social Security in trouble, saving now is their safest bet, and young people have a head start in this category. Compound growth over an extra 10 years may double your nest egg by age 70, which is why some savvy Millennials are outpacing previous generations in building wealth.
Always strive to save at least 10% of pre-tax pay—even more, if you can—and contribute enough to your 401(k) plan to get the full company match. Then add to your contributions with every pay raise. To stay on track and keep things simple, sign up for (or do not opt out of) the auto-enrollment and auto-escalation of contributions featured in many plans.
By starting to plan for your future now, you will have a head start on a secure future.
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