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August 21, 2017

Millennials Turning 30 – Here’s The Why and How To Save Now

401k advisor annapolis

Millennials turning 30 – here’s the why and how to save now

By Ryan Ansted, Managing Partner, CRPC®,  Scarborough Capital Management   

Worried about your current financial situation? We can help.
Worried about your current financial situation? We can help.

For those that graduated college about eight to 12 years ago, you may have landed a great job and have no student loan debt. Maybe you’re even putting away a lot in your 401(k) and found a place to live in a low cost neighborhood where you’ll rent for a few years until you decide to buy a home.

Or maybe not.

Chances are that for Millennials either entering or in their early 30s, the last decade plus has been a bit shall we say, unsettled? And maybe your financial picture isn’t quite as solid as you’d like.

How then can we use the lessons of the past combined with the current situation you may be faced with to put together a solid financial plan for your peak earning years?

First, let’s take a step back and ask a question. Is it even important to start early? Can’t someone just save more later?

Why saving early is key

Here’s an example. Bob is 20 and wants to retire at 67. He has about $200 per month he could invest, and can currently get a 5 percent return annually on his 401(k). If Bob started today from zero, he’d retire with close to $450,000.

But instead, Bob decides he wants to buy a new car when his current car is just fine. The car costs $24,000, which is what he could invest for the next 10 years. He figures he can make up the difference down the road when he starts earning more.

Fast forward 10 years. Now Bob is 30, and he decides he wants to spend this next decade’s $24k to buy a boat.

Here’s a chart on how Bob’s lack of savings has impacted his 401(k) account, and what it would look like if he only started saving at 40…

Saving 200 v2
What does this mean? Well, every 10 years Bob could be putting in $24,000 in principal to this fund. That means Bob would need to invest $48,000 to make up the principal that he didn’t fund earlier.

But the main consideration here is what happens to that principal if you allow the interest to compound over a longer timeframe.

If someone could talk Bob out of buying that boat and instead starting to invest at 30 as opposed to 40, his $24k is able to generate about $95k in added interest.

And as you can see, the earlier Bob starts the more his funds will grow. Even starting at 30, Bob can still accumulate more than $250k with only $200 per month.

If you’re seeing this and feel like you’ve missed an opportunity in your 20s to fund your retirement account, use that as motivation to start today.

So, now that we know why it’s important to get serious about your finances, how do we do this?

  1. Figure out what you make – after taxes, healthcare and investments.

This is the key number to work with – what’s actually left in your account after you pay Uncle Sam, your healthcare and your future self.

  1. Figure out what you’re spending on – and be brutally honest.

If you’re finding that you’re short each month, or staying on budget but not really making any headway with your student loans, it might be time to take a closer look at what you are actually spending money on. Thinking about it in terms of how much this money could grow to be worth in the future can make an impact here. Look at items such as your phone plan or any streaming service or memberships you have. You’d be surprised what you can cut.

 3. Using promotions, raises or other opportunities to increase your contribution.

Here’s the upside. If you’re working hard and doing a good job, there’s a possibility that you could soon get a promotion, raise or even a better paying opportunity at another organization.

And with the digital tools we have available to connect to others you can pick up some extra income freelancing on the side as well in a wide array of fields. Take this extra money and roll it into your 401(k) or finish paying off loans.

  1. Determine your investing IQ

How much do you need or want to know about investing? At a very basic level, everyone should have a good idea of the points above.

You’ll also have to decide what investment options to choose and how to allocate those funds, as well as how aggressive you want to be, what age you want to retire and how market fluctuation is going to impact your investments. The good news though is if you’re just getting started investing and could use a little guidance, we can help.

Our 401(k) management is easy to use and comes at as little as a dollar a day. The best part is you can keep your funds in your current 401(k) and use the tools your current employer has for you. We’ll monitor and adjust based on your goals.

If this sounds like the right type of financial planning assistance for you, give us a call or send us an email today. We’re here to help you save money for that boat – and still have plenty left for other fun retirement activities.

 

Securities offered through SII Investments, Inc. (SII), Member FINRA, SIPC. Advisory Services offered through Scarborough Capital Management (SCM), a Registered Investment Advisor. SII & SCM are separate companies.  Please consult with your representative to confirm on which company’s behalf services are being provided.   Neither SII nor SCM provide tax or legal advice.

Opinions, estimates, forecasts and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice.

This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  Past performance does not guarantee future results.  Diversification and asset allocation do not guarantee positive results.  Loss, including loss of principal may result.

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