8 retirement tips for millennials: including the “snowball method” and the “50/20/30” rule

Before we get into the tips and why you should prepare for retirement; consider this:

Let’s say you start saving $100 a month right now. If you assume an average annual return of 6% on your investment, you will have $46,000 in 20 years and $192,000 in 40 years. However, if you wait ten years to start investing your savings, you will only have $17,000 in 20 years and $99,000 in 40 years.

Your retirement strategy should start during your early working years. Commitment to the success of the strategy will have a huge impact on your quality of life after retirement.

Retirement is widely seen as a breath of fresh air, it’s the time when you have time to fulfill your travel dreams, take up a new hobby, spend time with your family and enjoy life after your career.

The full retirement age is 67 for millennials and the average life expectancy for Americans is 78.7. The average retiree spends $48,000 per year, depending on Bureau of Labor Statistics.

By this calculation, the average millennial will spend $609,600 after retirement. Remembering these tips will give you an edge in retirement and help you achieve financial success in your golden years.

Without having to rely on credit cards, which can take a long time to pay off while potentially charging high interest, emergency funds provide a financial buffer that can keep you afloat when needed.

If you are in debt, having an emergency fund is extremely crucial as it can help you avoid borrowing more.

Automatically contribute to tax-deferred eligible plans, like 401(k)s, where you can invest pre-tax dollars in a variety of mutual funds. If employer matching is available, contribute enough to qualify.

Saving for retirement through a tax-deferred vehicle can give you a boost over time, allowing you to avoid paying taxes while your money grows and potentially lowering your tax bill when income is collected.

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Pay off the smallest of all your loans as quickly as possible using the “snowball method”. When this loan is paid off, transfer the money you paid for this loan to the next smallest debt you owe. This approach should ideally continue until all accounts have been paid.

As you transfer money from the smallest number to the next on your list, the total “snowballs” and grows bigger and bigger, speeding up the process of paying down the debt.

A powerful tool for retirement savings, the health savings account is a tax-advantaged savings account intended specifically to pay health costs. Contributing to the account and using it to pay eligible medical bills could save you a lot of money on your overall healthcare costs.

Expert in behavioral finance, Chari Reiches said Business Intern “Everyone says, ‘These meme stocks can only go up,’ because that’s what they see on the news. That’s what they hear, but sometimes you just have to step back and to have a long-term view and to be diversified and not put all your money in one bucket.”

What she meant by that was that instead of following the trends, hoping to win big like in a casino, follow the proven ways of saving and investing for the long term, like buying shares of index funds such as the S&P 500.

Practice the “50/20/30” rule, popularized by Senator Elizabeth Warren in his book”Everything You’re Worth: The Ultimate Lifetime Money Plan”.

This involves spending 50% of your income on expenses, 30% on optional expenses, and 20% on saving for future goals, including retirement.

This one is obvious, however, for many people, it’s easier said than done. Stay away from credit card offers, loans, and anything that would allow you to access funds your income can’t cover.

Simply put, your expenses must be equal to or less than your income.

To use the previous example, at $100 per month saved and invested, assuming an average annual return of 6% on your investment, you will have $46,000 in 20 years, and in 40 years this will increase to $192,000. However, if you wait ten years to start saving, you will only have $17,000 in 20 years and $99,000 in 40 years.

The numbers don’t lie.