bUSINESS & FINANCE
The stock market will rise another 15% next year! No, wait, it’s dropping 5%, at least if President Donald Trump’s tax cut never passes. It’s the time of year to digest more than just turkey: Nearly every bank on Wall Street has a new forecast for the stock market in 2018, and if they seem like a blur that’s because they collectively are one.
But each has its pluses and minuses — ideas that pass the smell test, others a touch rank. Most strategists think the Standard & Poor’s 500 index SPX, +0.43% has another 10% or so to rise after a 17% gain so far this year. But in looking at their reports, there’s also a palpable sense of experts keeping one eye on the exit, just in case.
The good news: Nothing looks as dumb as Royal Bank of Scotland’s advice to “sell nearly everything” heading into 2016, warning of a “fairly cataclysmic year ahead.” (The S&P returned 12%, and began a still-running, record-long rise without a correction by February). The bad news: RBS’s misadventure underscores that market forecasting is more art than science.
The argument: U.S. markets are in the middle innings of a 20-year bull run, BMO Capital Markets strategist Brian Belski argues. He’s calling for a 2950 S&P by the end of 2018, thanks to 11% earnings growth and valuations (specifically, price-to-earnings ratios) that ease only slightly off this year’s near-historic peaks. The key to that call is interest rates not moving up much.
Strongest point: Realistic fundamental expectations — BMO’s earnings forecast is close to consensus.
Weakest point: Belski’s argument relies on valuations staying near where they are as the Federal Reserve at least tries to raise interest rates.
The (Relative) Pessimist
This year was too good to repeat, is Morgan Stanley strategist Michael Wilson’s argument: He sees the S&P rising to 2750 in 2018. And he thinks it’s a good time to sell some U.S. corporate bonds, whose valuations have been stretched by persistently low interest rates.
Wilson’s argument turns on the idea that the U.S. expansion is getting old, and earnings growth will begin to fade after the first half of next year. The recession isn’t here yet, and not all the signs of overoptimism that show up late in bull markets are present, he says — but they’re close.
“We do not think [earnings per share] growth in 2019 will be that exciting and could even be negative,” Wilson writes. “Undoubtedly, that will matter for stock prices next year.”
Strongest point: Expansions do end sometime.
Weak point: Most economists don’t see that happening within 12 months, or even 20, given the absence of speculative bubbles (the bitcoin market is too small to matter)..
The (Prestigious) Fence Straddler
Goldman Sachs’s David Kostin has to reconcile the bullishness of Goldman’s economists and worries that the market is too expensive. His answer: The market may fall 5% if Congress doesn’t cut corporate taxes, but otherwise it should rise 11%, with the S&P reaching 2850. He thinks corporate earnings will rise 14% with a tax cut and 9.2% without one.
Strong point: Kostin points out that most stock gains since 2010 have come from improved profits, with 30% from higher valuations. In 1996-2000’s bull market, half the gains reflected higher price-to-earnings ratios, Kostin says. In that light, 2850 next year is “rational exuberance,” Kostin writes.
Weak point: He sees a modest further expansion of stock multiples he acknowledges are historically high.
The Truth, According to Me:
The likeliest 2018 outcome is sustained U.S. economic growth, begetting pretty-good profits and an opportunity for stocks to rise. That’s especially so because there are still reasons to be skeptical that inflation will surge, or that interest rates will rise enough to hurt stock multiples much.
The economy has plenty of capacity to deploy before being stretched. Even leaving aside Baby Boomers retired since 2008, there are still about a million fewer people in the post-recession workforce than there ought to be. The re-entry of some of those workers should limit wage demands, and recent gains in business investment may help productivity growth, containing inflation expectations. Moody’s Analytics economist Adam Ozimek says 3% employment-cost growth, which scares most strategists, could still be two to three years out.
But earnings growth effectively limits how much an expensive market like this one can rise. It’s smart to assume price-to-earnings multiples will moderate by late 2018, because the end of this already-long expansion will be 12 months closer.
Add it up, and you get 10% profit growth and a dip in price-to-earnings ratios — small, because next fall there still shouldn’t be a recession in sight. Put me down for a 5% jump to a 2730 S&P 500, a 7% gain including dividends. If I bet on that being too high or too low, I’d take the over.
A new international study discovers psychosocial factors, including work and financial stress, significantly increase the risk of having a heart attack or myocardial infarction. Currently, few doctors ask about stress, depression or anxiety during an annual examination.
Researchers believe inquires on stress, and suggestions on where to obtain information to improve coping skills and enhance resiliency, should become standard practice, just as current standards have physicians asking about smoking.
The INTERHEART study, presented at the 18th Annual Congress of the South African Heart Association, discovered the odds of myocardial infarction was 5.6 times higher in patients with moderate or severe work stress compared to those with minimal or no stress.
Individuals with significant financial stress had a 13-fold higher odds of having a myocardial infarction.
“The role of psychosocial factors in causing disease is a neglected area of study,” said lead author Dr. Denishan Govender, associate lecturer, University of the Witwatersrand, Johannesburg.
“The study showed that psychosocial factors are independently associated with acute myocardial infarction (heart attack) in Africa but as far as we are aware there are no other published local data,” said co-author Professor Pravin Manga, professor of cardiology, University of the Witwatersrand.
In other words, stress, even in the absence other cardiovascular conditions such as high blood pressure or elevated cholesterol, can significantly increases the risk of a heart attack.
This study included 106 patients with acute myocardial infarction who presented to a large public hospital in Johannesburg. A control group of 106 patients without cardiac disease was matched for age, sex and race.
All participants completed a questionnaire about depression, anxiety, stress, work stress, and financial stress in the previous month. A Likert scale was used to grade the experience of each condition.
Investigators assigned four resiliency profiles to classify how well a person was coping with financial stress:
Self-reported stress levels were common, with 96 percent of heart attack patients reporting any level of stress, and 40 percent reporting severe stress levels.
There was a three-fold increased risk of myocardial infarction if a patient had experienced any level of depression (from mild to extremely severe) in the previous month compared to those with no depression.
Govender said, “Our study suggests that psychosocial aspects are important risk factors for acute myocardial infarction. Often patients are counselled about stress after a heart attack but there needs to be more emphasis prior to an event.
“Few doctors ask about stress, depression or anxiety during a general physical and this should become routine practice, like asking about smoking. Just as we provide advice on how to quit smoking, patients need information on how to fight stress.”
In an ideal world, an excellent credit score should mean you get a lower interest rate than people who have worse scores. After all, isn’t that why people strive to pay off their credit-card bills on time? In the real world, however, that’s not always the case.
“Having an excellent credit score does not guarantee a low interest rate,” says Majd Maksad, Founder and CEO of Status Money, a company that allows people to compare scores anonymously. He analyzed 15 million credit scores from consumers — and their interest rates. In fact, 25% of accounts with excellent scores had an interest rate higher than 20% of those with lesser scores, he said. Maksad says consumers should always compare offers and push for a lower rate.
Here’s how the credit-score system is supposed to work. A credit score of 740 or higher qualifies for the best interest rates from most lenders, according to personal-finance site Bankrate.com. “It is difficult, but possible, to get a mortgage with a credit score under 620,” according to Sheyna Steiner, an investing analyst for Bankrate. “The difference between the best and worst rates can vary by a full percentage point and a half.”
But a low or poor credit score can also prevent people from getting a mortgage. “Buyers below a certain threshold, typically a FICO score of 620, have a better chance of striking oil in their bathtub than securing a mortgage,” Steiner says.
While knowing someone’s credit score doesn’t necessarily reveal whether that person has a medical or student debt or even their annual income, it does indicate whether they are eligible for a loan. A bank will look at each person’s scores — from the three major credit bureaus, Experian EXPN, +0.39% Equifax EFX, +0.04% and TransUnion TRU, -0.22% — and then take a couple’s average score to determine their overall creditworthiness.
And a low credit score doesn’t necessarily mean that you are irresponsible with money or even have no money. Credit scoring models look at the amount a consumer owes versus the total amount of credit available, known as the credit “utilization ratio.”
Savings advice can sometimes seem like satire.
Start early. Save 15% of your income. Make sure it's your pretax income. Do it for 40 years. Cross your fingers. Click your heels.
But in the real world, that's not how it works for most people.
As a financial planner in New York City, I see firsthand how dismayed many people are by the standard savings advice. To those of us who work with money all day, 15% is just a number. But to someone who is trying to make ends meet, it can feel like a failing grade.
Benjamin Dixon captured this sentiment perfectly when he tweeted "I almost choked on my avocado toast" in response to a recent CNBC article that recommended having double your annual salary saved by age 35. The tweet has over 5,000 retweets and over 10,000 likes.
Clearly, Dixon's comment resonated.
Although savings advice is well intentioned — and not wrong — there's a disconnect between the advisers and the advised. Americans put away an average of only 3.5% of their income, after taxes and expenses, according to July data from the US Bureau of Economic Analysis.
Many factors account for the savings gap: student loans, healthcare, expensive housing.
So saving 15% today probably isn't possible for most people. But that doesn't mean you should throw in the towel. Perhaps you could save 1% more than you are now, or 3% more. Incrementally increasing your savings will help your account balances grow, but it does something else that's even more valuable: It creates momentum. Once you start moving, it's easier to keep going.
Speaking of momentum, it could be time to look for a new job with a higher salary. Getting a raise allows you to bulk up your savings percentage without cutting back on your current expenses.
Temporary savings hacks can do wonders, too. Saving aggressively by using the "starve and stack" method, for example, could make a huge difference in your future retirement account balances.
If guidelines help, there are plenty to follow, like those laid out by David Bach, a financial adviser, in his book "The Automatic Millionaire," or charts showing how much you need to have saved to retire.
Ultimately, it's important to be honest with yourself. Sometimes, saving isn't going to possible. But the key word is sometimes. At other times, you will have the ability to save, and you should make it a priority while you can — even if that means moving to a cheaper apartment or trading a gas-guzzling car for one that gets better fuel economy.
As with any goal, you can't be too hard on yourself. There's never going to be a perfect week, or month, or year. All you can do is recognize the difference between when you truly can't save and when you probably could do more than you are now.
There are so many different retirement investment options. Sometimes it’s hard to figure out which ones are the most advantageous from an income standpoint. Following are some of the best choices.
1. Dividend Stocks and Funds
Dividend stocks can be especially beneficial if you’re investing for the long term. Dividends can make up around 45% of your total return if you reinvest. (Total return calculates dividend payments). Dividends are less volatile than earnings over time.
Investing in mutual funds is highly beneficial. You will receive a professionally diversified portfolio for much less money than it would take to purchase individual stocks and bonds. Your fund manager is also responsible for tracking the performance of all the funds so you don’t have to worry about the details.
Exchange-traded funds (ETFs) take the benefits of mutual fund investing to the next level. Advantages include low operating costs, flexible trading, greater transparency and better tax efficiency in taxable accounts.
2. Annuities: Fixed and Variable
An annuity is an insurance product that pays out a steady income stream in retirement. It’s meant to be used as one part of a strategic plan for your golden years that can be mapped out with a professional.
Here’s how an annuity works: you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. You can decide if your annuity payments will come monthly, quarterly, annually or even in a lump sum.
Annuities are beneficial because they carry a low amount of risk and they can often be protected from creditors and frivolous lawsuits.
Tax deferral and exclusion ratios on annuity payouts are additional strategies that help people lower their tax exposure. Annuities can also efficiently pass outside of probate, so they are beneficial from an estate planning standpoint.
3. Bonds: Municipal, Corporate and Agency
Decades ago, U.S. savings bonds were issued on paper. They were a popular way to make a contribution toward a child or grandchild’s future. They are now issued electronically and are not nearly as widely used as before. But bonds can still be valuable components of retirees’ savings portfolios.
The “cash infusion” from cashing in a bond may help some retirees delay withdrawing assets from other accounts. This allows them to continue growing. A bond that is decades old could cash out at anywhere from three to nine times its face value at full maturity. Also, the interest on bonds is exempt from state and local taxes even though it is taxed by the IRS.
Municipal bonds are debt obligations issued by states, cities, counties and other governmental entities, which use the money to build schools, highways, hospitals, sewer systems, and many other projects for the public good. When you purchase a municipal bond, you are lending money to a state or local government entity. It then promises to pay you a specified amount of interest and return the principal to you on a specific maturity date.
Agency bonds are issued by two types of entities: government-sponsored enterprises (GSEs), usually federally-chartered but privately-owned corporations, and federal government agencies. The latter may issue these bonds to finance activities related to public purposes. These include increasing home ownership or providing agricultural assistance.
Agency bonds are known as relatively safe investments, with low risk and high liquidity. They give individuals and institutions the opportunity to gain a high return on their investment. They also sacrifice very little in terms of risk or liquidity. Also, the multitude of bond structures found in agency offerings allows buyers to tailor their portfolios to their own situations. (For more, see: 4 Mistakes to Avoid with Your Retirement Plan.)
Corporate bonds are also attractive to investors for a number of reasons. They usually offer higher yields than other maturity government bonds or certificates of deposit (CDs). They also provide steady income while preserving your principle. There are several options for “safe” investments in terms of the likelihood of repayment of principal and interest. Corporate bonds additionally offer diversity in their options. And they are very marketable if you need to sell them before maturity.
CDs (or share certificates, as they’re called at credit unions) are a way to enjoy higher returns on your money without a lot of risks. You agree to keep your money in a CD for a designated period of time, called the “term length.” Generally speaking, the longer the term length, the higher the interest rate you’ll earn.
The average rate on a three-year CD taken out at a bank currently stands at 0.49%. However, many credit unions and online-only banks offer certificates with rates above 1%.
Other advantages of CDs include having your savings – up to $250,000 per account ownership category per institution – insured by the federal government. Also, since CDs have an early withdrawal penalty like IRAs and 401(k)s, there is more of a savings incentive than a typical checking or savings account.
NEW HAVEN, Conn. (CNN) — If you want to buy a house, you’re not alone. Many first-time buyers face competitive markets that favor sellers. So, we are stretching your dollar with tips that will help you snag a good pad. Whether you’re buying a home or about to make another big purchase, there are steps you can take to ensure you get the loan you need.
The road to home-ownership can be long but here’s where experts say you should start. Check your bank balance. Many lenders typically like to see a 20 percent down payment, even before you can get a loan. If 20 percent is too steep, there are some down payment loans that need as little as 3.5 percent.
Either way, you’re gonna need some cash and that means either creating or amending budgets. Remember, anything less than 20 percent means you’ll pay more every month. Know your credit score. The higher the score, the more likely you are to get a loan and a lower interest rate.
There are three major credit reporting companies. Federal law mandates each company give you one free report once a year.
Look at the reports carefully and get any mistakes fixed. Also, lenders check your debt-to-income ratio. That’s your monthly debts divided by monthly income. Many lenders want to see the number no higher than 43 percent.
Check with your bank and ask what it is willing to lend you, then research houses. Go online so you can get an idea what houses cost in the area you want to buy. Taking these steps may make buying a home less rocky.
It’s really good to start working on your financial health even if you’re not looking to buy a home. Then if you ever need to make a move, you have years of good credit to back you up.
Saving for retirement isn’t just about stashing away however much you think you’ll need to keep up your lifestyle — it includes planning for the unknown.
Unfortunately, a lot is unknown. For millennials, that includes if they’ll receive Social Security or Medicare benefits, if they’ll need to help their aging parents, and how their retirement funds are managed. “The need for millennials to save for retirement as early as possible is even greater now,” said David Siegel, chief executive of investing website Investopedia.
More than half (52%) of millennials guessed how much they would need in retirement, according to a 2014 Transamerica Center report, and only one in 10 used a calculator or spreadsheet.
Already, millennials are in a tough spot — they have more student debt than any generation before them, they earn less money than the generations before them did at their age and they’re in a “sandwich” generation, where they’re likely going to have to support themselves, alongside their parents and their children. Millennials are also not very optimistic about their retirement — 64% of respondents in a Wells Fargo survey of more than 1,000 millennials said they would never accumulate $1 million in savings over their lifetime. They also expect to work until they’re 90, according to a video by research firm Morningstar.
The good news? It’s never too early to save, and the quicker a millennial begins, the better their chances of being comfortable in retirement. Experts suggest starting with whatever they can muster, even as little as $5 every month. The benefits of such a small amount will add up with compound interest, but doing so also forms a habit of putting away money consistently, and the next time they get a raise or a little extra money, they should continue to add more to their savings. Overall, despite the financial hurdles, millennials are confident in how they save.
Still, it never hurts to be overly cautious, and that includes saving more or planning for one of these four situations to occur:
You don’t get Social Security
Millennials aren’t all that confident they’ll receive Social Security benefits in the future, according to a recent Investopedia survey: 19% said they felt confident whereas 81% were not. Right now there is a lot of debate about what to do with the Social Security program, which can start for people as early as 62 years old. Anne Alstott, author of “A New Deal for Old Age” and a Yale Law School professor, thinks the age to receive full benefits should increase to 76, because people are living healthier for longer and working into their retirement age. Doing so might even keep Social Security alive for millennials, when the time comes. Until a solution is reached, however, Siegel suggests millennials begin saving for that hole now.
You have to take care of your aging parents
More than a third of Americans believe they will help their parents financially in the next seven years, according to the Society of Grownups, an online financial advice group. One 21-year-old Reddit user is already planning to get started helping her parents with their retirement, because they always supported her and were paying down a mortgage. Experts suggested showing the parents how to open a health savings accounts as an investment portfolio as well as saving for medical expenses. They also suggested helping contribute to Roth Individual Retirement Accounts, and paying the taxes from an IRA-to-Roth-IRA switch.
Unexpected health-care costs
More than half (60%) of respondents over 50 years old said they were worried they would have to delay their retirement, possibly because of the impact of government policies or a lack of savings to cover health-care costs, according to the Investopedia report. This can serve as a lesson for millennials. Health-care costs might be dangerously underestimated — today, a couple might need $350,000 to pay for most of their health-care costs. Not everyone can afford their health care — more people have had trouble paying for their health insurance since 2015, according to the Kaiser Family Foundation, and they’re putting off taking care of themselves: 27% of the public said they or a family member have delayed necessary health care because it was too expensive, with another 23% saying they skipped a medical test or treatment and 21% didn’t fill a prescription.
Your employer or adviser is mismanaging your retirement funds
Mismanagement of funds or too many fees on your retirement accounts could be detrimental to the number you see when it comes time to retire. The government created the fiduciary rule — now delayed — intended to combat excessive fees and foster more transparency in retirement investments management. Former President Obama and the Labor Department said retirement savers lose $17 billion a year to conflicts of interest in their investment advice — savers are urged to review the details of their accounts.
Danny Kofke, a 41-year-old middle-school teacher outside of Atlanta, often looks at a picture of a family trip to Disney World from a few years ago -- to him, it exemplifies what he’s working toward in his retirement: more trips and long-lasting happy memories.
He and his wife, Tracy, a former schoolteacher and now a technology coach, started saving when they were first married in 2000, putting away money every month and increasing their savings as they received raises. They recently had to adjust their contributions to pay off the last of their debt, and plan to be debt-free this fall, but they’re making it up with sound and stringent financial decisions.
“Having an eye on the bigger prize helps us say no to things daily,” he said. This includes having a car he can’t charge his iPhone in because it came out before the iPhone was introduced — a small price to pay for not having a car payment in 13 years.
The 40s decade is a critical time for retirement savings, as it is likely when a person will reach their peak income and can make a dent in their long-term goals if they haven’t yet begun to do so. For a 40-year-old with nothing saved for retirement, putting away $650 a month (about 15% of a $50,000 salary) can get them $1 million in retirement savings by age 67, according to calculations on personal finance personality Dave Ramsey’s website. (That’s not too far off from the amount in savings for the median working-age couple, which is $5,000, according to a 2013 Federal Reserve survey of consumer finances).
Maximizing earnings should be a main focus in your 40s, experts said. This includes negotiating salaries, asking for raises or finding additional income. If a salary isn’t enough to support your lifestyle and retirement savings, there are two additional options: the first, create or look over your budget and see what can be cut — the second, consider a side hustle, said Jill Cornfield, who writes about retirement for personal finance site Bankrate.com. You can start with a hobby, or build a mini business and eventually make that side gig a full-time job if you’d like. Regardless, saving as much as you can is important. “I have never heard someone who said ‘I wish I hadn’t saved so much.’”
Now is also the time to begin using various types of accounts for retirement funds, said Patrick Amey, a financial adviser at advisory firm KHC Wealth Management Services in Overland Park, Kan. Max out employer-sponsored retirement accounts, such as a 401(k) or 403(b) plan, and use Roth Individual Retirement Accounts (IRAs). The third option is a taxable investment account, that they can use in the early years of their retirement as their tax-deferred accounts (the first two types) continue to grow. Cornfield said a good estimate is stashing away 8% to 12% of your salary, whereas Amey said anywhere from 10% to 15%.
Sticking to a plan is also key to having a comfortable amount of assets when it’s time to retire, something Joe Mecca, a 40-year-old marketing manager at Coastal Federal Credit Union in Raleigh, N.C. has done, he said. Even when finances were tight — such as student loans, auto loans and at one point his dual-income household becoming a single-income household — he remained steadfast on contributing to his future’s funds, knowing the money would grow to his benefit. He did admit it would have been easier to stop contributions so he could have more cash flow every paycheck, though.
“I had to have faith in the system,” he said. “Even as I was going through different life changes I have always trusted the plan.”
Daniel Packer, a 29-year-old data analyst at an online advertising agency in Los Angeles, knows more responsibilities will stack up as he hits the big 3-0 this summer, so he’s been religiously stashing away money in his retirement accounts the last few years.
Retirement is a long ways away for him, he says — at least 30 years — but saving money early on means not worrying about putting away as much later down the road if he weren’t able to do so. He’s already seeing his strategy pay off, given he has a 1-year-old daughter and raising kids is expensive (try somewhere between $284,000 and $600,000). “I’m glad I was able to take advantage of [saving] for the last nine years,” he said.
Thirtieth birthdays are an excellent time to take stock of your future funds, especially as short-term financial obligations solidify, such as continuing to pay off the last of student loans, living on your own (or maybe starting a potentially three-decade stretch of mortgage payments) and raising children. Millennials, the generation 20s to mid-30-year-olds fit into, have delayed marriage and home ownership from happening in their 20s (as was the norm decades ago). Now 57% of today’s 30- year-olds are or have been married, 47% are living with a child and a third are homeowners, according to the United States Census Bureau.
By 30, you should have a decent chunk of change saved for your future self, experts say — in fact, ideally your account would look like a year’s worth of salary, according to Boston-based investment firm Fidelity Investments, so if you make $50,000 a year, you’d have $50,000 saved already. By 35, you should have twice your salary, the firm said. The median retirement savings for a worker in their 30s was $45,000, according to Transamerica Center for Retirement Studies, which looked at workers’ retirement accounts including employer-sponsored accounts and individual retirement accounts.
The problem? Not everyone is saving — or can save — that much toward retirement. Either they’re living paycheck to paycheck, don’t know about the accounts available to them or simply aren’t thinking about the amount of money they’ll need in their futures. Only a third of Americans are saving money in an employer-sponsored or tax-deferred retirement account, according to the U.S. Census Bureau.
Today’s 30 year olds (and the soon-to-be 30 year olds) are plagued with crippling student debt, which just hit a record $1.31 trillion and affects millennials more than any generation before them. On top of that, some millennials are skipping starter homes altogether for a bigger home and, as nice as that is, home prices are rising as are mortgage rates. Some may also be splurging for a wedding — scary fact: the average American wedding costs about $35,000. The last thing someone in their 30s should do, though, is leave retirement to the wayside.
“It’s important to be saving for retirement while doing all these things at the same time,” said Alexander Rupert, assistant portfolio manager at Laurel Tree Advisors in Cleveland, Ohio. Retirement savings should be growth-oriented for someone in their 30s, he said, which means they should be stashing money away whatever they can and considering a high risk tolerance. Market ups and downs will affect the portfolio, but young investors should remember their money (and they) are in it for the long haul, Rupert said.
And if you’re not investing in an employer-sponsored account (after all, only 14% of employers offer such plans, according to the U.S. Census Bureau) consider a Roth IRA, which more forgivingly allows investors to use those assets for an emergency should a situation arise. As opposed to other accounts, like a 401(k) plan, that place penalties on individuals who withdraw money from these accounts, investors can take money out of a Roth IRA penalty-free so long as they only take out the money they invested, and not the investment earnings of those assets. Some 30 year olds, like Packer, have numerous accounts. Packer and his wife, for instance, have been maxing out their 401(k) plans and Roth IRAs for a few years.
“It will take a load off my shoulders later,” Packer said. “Setting ourselves up now will pay benefits in the future.”
As soon as Tsering Yangchen, a 25-year-old publicist in Minneapolis, started her first job out of college she signed up for her company’s 401(k) plan, meeting the employer match and contributing 7% of her salary.
When she left that job for a new one, where she wasn’t able to enroll in the 401(k) plan for a year, she took matters into her own hands, signing up for an individual retirement account and making contributions directly from her checking account. It’s been a year, and she’s now signed up for her 401(k) plan too.
Yangchen was inspired to save for retirement after discussions with her boyfriend and his father, both in finance, and exemplifies what most millennials are encouraged to do: just get started.
Millennials are at the greatest advantage for retirement saving — they have time on their side, experts say, and their money earns compound interest, which is interest earned on the money they put in as well as the interest that money earns. Granted not all millennials may have the ability to put away as much as Yangchen can, but any contribution counts — even just a few dollars. One mobile investing platform, New York-based robo adviser Stash, suggests investors start with just $5 a month as they become familiar with investing.
When you’re in your 20s, it makes sense to weigh short-term goals more heavily than retirement, said Douglas Boneparth, a financial adviser and president of advisory firm Bone Fide Wealth in New York. That’s not to say you shouldn’t be saving for retirement — you should be putting in at least enough money to meet a company match, since that’s essentially free money, and then prioritize short-term goals, he said.
There a long list of short-term goals millennials may want to accomplish: making a dent in student loans, which are highest for millennials than any other generation, saving for a first home and possibly getting married (which can cost upwards of $35,000 for some).
“No one tells you what’s more important,” Boneparth said. For Jacob Lumby, 27, and his wife Vanessa, 26, bloggers at personal finance site Cash Cow Couple, it was more important to max out their retirement accounts and live a frugal lifestyle so that they can “get ahead later in life,” Lumby said. They bought a mobile home for cash, so there are no housing payments, and share a car. At this age, everyone is evaluating what’s most important for them (for many, that means experiences) but creating solid savings habits will prove beneficial down the line. “Not everyone is going to go the same route to save a lot in their 20s — some would rather not, and that’s fine,” Lumby said.
What anyone in their 20s can do, however, is find consistency in their money habits, such as saving for the future, allocating income toward big life goals as well as emergency situations and paying down debts. Millennials seem to be pretty good about saving, for emergencies and retirement, but still about a third of consumers say they might not be able to afford an unexpected $2,000 emergency. One way to save for both retirement or an emergency is by investing in a Roth individual retirement account, where money can be withdrawn penalty-free if it’s just the principal and not the interest earned on the assets, Alex Rupert, assistant portfolio manager at Laurel Tree Advisors in Cleveland, Ohio.
And while working on generating more income, such as doing a good job at work, asking for a raise or partaking in side gigs, you should also focus on what you can easily control, such as the money you’re currently using, Boneparth said. Cait Flanders was 29 when she decided to meticulously analyze her spending habits — she threw away 75% of her stuff, paid off $30,000 in debt and went on a two-year shopping ban, all while tracking her weekly spending. “Re-examine your lifestyle,” Boneparth said. “Build that discipline so that when you do receive additional income, you can afford to save it toward your goals.”
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