5 Minute Read
When you’re 25, the last thing on your mind is retirement. Who knows what life will be like when you’re 65, right?
But no matter what happens when you reach your 60s, I can promise you this: you’re going to need a big nest egg for retirement. You absolutely need a fund that you’re regularly investing in.
Even when millennials (full disclosure: that’s my generation) get it, they don’t seem to get it right. They might understand how important retirement investing is, and they might even be actively saving, but a lot of them are still making some mistakes.
As I’ve traveled across the country and talked to other twenty-somethings, I’ve found that they often make the following five mistakes when investing for retirement.
1. They save in low-interest accounts.
You need to have a 401(k) or a Roth IRA set up for retirement. There’s a growing trend among millennials to simply stash money away in a basic savings account or simple CD.
While it’s awesome they realize the need to save, they’re totally missing out on the benefits of compound interest and the stock market growth over the last several years. They’re probably concerned over seeing their parents’ savings dwindle during the Great Recession, and I can understand that. But the stock market is pretty resilient.
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A basic savings account won’t even keep up with inflation! For short-term stuff, savings accounts are great. But when it comes to retirement, put your money in a retirement account.
2. They’re crippled by student loan debt.
We’re right in the middle of a student loan crisis, and millennials are feeling it more than anyone.
When you’ve got $30,000 in student loan debt, it’s hard to even imagine being out of debt, much less putting away money that you won’t use for another 40 years. Income is an issue too, because millennials are still early into their careers.
If you find yourself in this situation, the best thing you can do is take an extra job or sell as much stuff as you can. Your goal should be to get out of that student loan debt as quickly as possible. That way, you’ll be able to focus on retirement and building a foundation for your family’s future.
3. They’re scared or intimidated.
You don’t know what you don’t know.
A lot of millennials are intimidated by the idea of long-term investing. It’s so much easier to just put money away in a savings account and not have to worry about losing it in a recession. Many of their parents went through that, and they don’t want to experience the same thing.
But the stock market has made a 12% average annual return over its history. Even when it drops significantly, like during the Great Recession, it always rebounds quickly and even stronger than before.
Don’t be scared to invest. If you find yourself in that situation, look for a financial professional with the heart of a teacher. Find someone who is patient and trustworthy and is willing to answer any of your questions.
4. They’ve believed the Wolf of Wall Street myth.
Corporations are evil. Wall Street is evil. The man’s just out to get us.
A lot of millennials make the mistake of believing corporations are sent from the devil to make their lives miserable (see Occupy Wall Street). And they’ll tell you how evil these big companies are by tweeting about it on Twitter using their iPhone made by Apple. How’s that for irony?
The truth is that not every corporation is slimy and unethical. None of them are perfect because they are led by imperfect people.
Sure, there have been many corporate scandals over the last couple of decades, so I understand my generation’s reluctance. But you can’t let a few bad apples ruin your view of the whole bunch.
To really get the most out of your retirement, you’ll need to put some trust in mutual funds to make money for you—and those mutual funds will be made up of a lot of corporations. So if you want to build a nice 401(k), ignore the myth that the wolf on Wall Street is out to get you.
5. They underestimate retirement costs.
Some millennials simply have no idea of how much they’ll need when they retire. One recent study by TransAmerica said that nearly 40% of millennials believe they’ll need less than $500,000 at retirement.
That may seem like a lot, but when you stretch it out over 20 to 30 years, it won’t go very far. Again, sit down with a financial advisor who can look at your specific situation, show you how your money will grow over the years, and estimate how much you should be saving every year for retirement.
Don’t stick your finger in the air and blindly pick a number. Be intentional and make sure your future is secure by taking that first step toward a secure retirement: Let us put you in touch with an experienced investing professional in your area today for a free retirement consultation.
Millennials have a huge advantage—and it’s simply time.
That’s not an excuse to procrastinate. It should actually be a motivator to start investing as soon as possible.