In 2014, almost one-third of baby boomers had nothing saved for retirement. For those who did save, the median was around $200,000. This is a far cry less than the $1 million experts recommend for a 30-year retirement plan. Luckily, for millennials and Gen X, there is still plenty of time to craft an effective retirement planning strategy. Here are four tips to get you started.

1. Give Up the Love for Cash

After witnessing the stock and real estate markets crash in the Great Recession, America’s millennials now mostly hedge their bets on cash investments. According to Forbes, cash investments yield returns of just 1.5% on average. While the stock market and other forms of investments are variable, the returns can be much higher. On average, the stock market yields 8% in annual returns. And, even in a decline, the people who can afford to wait out the market may benefit from its recovery.

2. Watch Out for Student Loans

With the rising cost of obtaining a college education, no matter how well parents plan, most students need grants, scholarships and/or student loans. While paying off student loans is important, beware of spending all your money on paying off debt rather than saving up and investing some disposable income for retirement. You should definitely prioritize student loans, but not to the detriment of other financial goals.

3. Consider Home Ownership

CNBC claims that it is better to rent than buy a home in today’s market. But, what does “better” really mean? For almost all calculations, what makes it better is that it is cheaper in the short run. However, for millennials and Gen Xers who can afford to purchase a home, those higher payments now build equity while providing opportunities for rent-free living in retirement. Some retirees may even generate income by using their property for short-term rentals.

4. Have an Emergency Fund

Saving is important, but saving blindly can lead to problems. For example, when Gen X and millennials save aggressively for retirement, they may pour as much of their income as possible into 401(k) and IRA accounts. This is a great idea, except for one big problem. What happens if there is an emergency? You may then face fees and penalties for early withdrawal from these accounts. You can rely on credit instead, but now you might owe interest. Remember to keep emergency cash on hand to protect your retirement plans.

Need more personalized advice for your retirement planning? Reach out to us at Sherman Private Wealth Management LLC at JSherman@ShermanPrivateWealth.com.

Sources:

1. https://www.cnbc.com/2018/11/07/one-third-of-baby-boomers-had-nothing-saved-for-retirement-at-age-58-.html
2. https://www.forbes.com/sites/forbesfinancecouncil/2019/04/25/seven-retirement-planning-mistakes-millennials-are-making-and-how-they-can-get-back-on-track/#447a7e5c44f4
3. https://www.cnbc.com/2018/09/05/its-better-to-rent-than-to-buy-in-todays-housing-market.html

Important Disclosures

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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