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How Are Millennials Going to Retire?

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The world of work and retirement is changing.

It used to be that you would start a job in the workforce (sometimes after graduating college, sometimes not) and stay there for the next 30-40 years. You'd then retire high on the hog with a decent pension and a monthly social security check.

Times are changing. The average millennial stays put for no longer than 4-5 years before moving on to their next job opportunity. They likely graduated with a four-year degree and can be near six figures in college loan debt. Pensions are no longer the norm and social security is projected to run out before they'll see their first check. What's a millennial to do?

Who is the Millennial Generation?

Millennials, also known as Generation Y are those of us born in the 1980's and after. We grew up watching Full House or Power Rangers and the latter of us never knew a world without technology.

Our parents constantly praised our accomplishments and made sure we were well-rounded by putting us in various extracurricular activities. Some would call us entitled. Others know that we are civic-minded and here to change the world.

Funding Our Own Retirement

Being that the retirement paradigm has shifted, it is up to us to control our own destiny and be responsible for funding our own retirement. We need to start early and save often. Here are a few ways to do that today.

Start a Roth IRA

If you don't already have a Roth IRA, consider starting one now. In 2014 you can contribute up $5,500 in a Roth IRA (providing you don't make too much money). You don't have to be aggressive when funding a retirement account either -- you can leave the money sitting in cash (not usually advisable long-term), invest in a CD or use any number of stocks, bonds or mutual funds. If this is all foreign to you, consider working with someone to help you get started.

Utilize Your Employer Retirement Plan

Take advantage of your employer's 401(k) plan (or TSP, 403(b), profit sharing plan, etc) and contribute at least enough to get the full match. Most have a Roth 401(k) option, which will make the most sense for us youngins over time.

The difference between a regular 401(k) and the Roth 401(k) option is that instead of contributing pre-tax money, you're contributing after-tax dollars. Just like how you receive your paycheck to be deposited into your checking account after-tax, you're contributing the same way to a Roth 401(k).

The big plus is that after the dollars grow tax-deferred (you don't pay taxes along the way), you then get to withdraw them tax-free. Providing you follow all of the rules of course!

Most companies will provide a dollar for dollar match (i.e. you contribute $1 and so will they) up to a certain percentage, say 5 percent. So if you contribute 5 percent of your salary to the plan, they will give you an additional 5 percent through a 401(k) match. This is free money that you are saying "no thank you" to if you aren't enrolled and contributing to the plan!

Not all employers offer a match (or a plan for that matter) and there may be vesting criteria (i.e. you must stay with us for five years to "own" your full match). Don't let a future potential job change prevent you from starting to save though. You will always retain your contribution (subject to market fluctuations if you're invested of course) and the habit of investing regularly is half of the battle.

Pay Yourself First

There is a lot of advice out there on how much one should save as a proportion of their income. 10 percent is probably the most widely accepted. I think that's going to be shy of the mark for us millennials however. If we can't depend on an employer paid pension or our full social security benefits (or any barring no big changes to the system), how will 10 percent suffice?

We'll need to save to provide for our full retirement, unless we decide to continue working in some capacity in retirement. It bears repeating, save early and save often. Get started saving somewhere and then challenge yourself to increase it over time.

Trim your expenses, consider how much you're currently saving vs. how much you pay for entertainment and learn how to budget based on your pay cycle. Start with $100 a month (or $10 if you have to) and then ratchet it up from there.

If you have debt, focus on paying it off as quickly as possible so that you can save more aggressively towards this goal. It's not all about the future though -- we need to each find that personal balance between today and tomorrow. None of our tomorrows are guaranteed -- but since neither is our retirement income, we have to find a middle ground to both.

How would you score yourself on maximizing your own retirement savings?

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