Millennials could be facing delayed retirement and tacking on years to their career. Retirement age, which was once averaged at 61, has increased to 73. That in itself is an eye-opening statistic. But paired with recent research that Americans are accumulating more in personal debt than they’re saving, it’s a financial crisis in the making.
The real impact of debt on your retirement
Personal debt indicates opportunity lost in terms of retirement contributions. That includes credit card debt, high mortgage payments and auto loans. Even with regular contributions to a retirement plan like a 401(k), debt can catch up you.
But another form of debt has proved to be a huge disadvantage for Millennials: student loan debt.
Weighed down by student loan debt, Millennials find themselves funneling money to their repayment that would have otherwise gone towards retirement savings. Moreover, the restructuring of career timelines (30 years at a single company is no longer the reality), disappearance of funded pension plans, and limited 401(k) options has added to the difficulty faced by young generations when saving for retirement.
Previously, young professionals were able to benefit from a structured retirement plan without much thought. But these changes in retirement planning have forced individuals to think independently about how they’ll have to save for their retirement.
If you’re facing high debt and low retirement contributions, the most beneficial thing you can do is take action as soon as possible.
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Make time work for you, not against you
High interest rates on debt increase the time and amount of repayment. In this way, time works directly against your financial benefit. But time can also be your biggest financial advantage.
Compound interest is invaluable for those contributing to retirement or savings plans. Compound interest works by adding interest payments based on your principal including the interest that continues to accrue on your principal. And the longer you have compound interest working for your savings, the bigger the payoff will be. Contributions will receive a boost from compound interest that can’t be replicated late in the game.
Take a leaf from the Gen-x book: Set up a plan
The good news? Generation-x is faring better than other generations according to a recent study. Those in their early 30’s are planning more than any other age with ⅓ of young Gen-xers creating a written retirement plan.
Retirement planning is essential in ensuring a financially secure future. Look at the numbers, how you can benefit by maxing out your options and understanding what steps you can to take in order to make the most of your contributions. By taking a leaf from the Gen-x book and creating a plan, you can ensure that you’ll be on your way to a solid retirement and aim to retire before you reach 73!
It might be the last day of National Saving For Retirement Week but that doesn’t mean you should stop saving. Share saving tips and information, talk about your retirement plan, and make sure that your future financial security a top priority as you make your present financial decisions.
Image Credit Geee Kay