Millennials: Plan for retirement now

With the possibility of limited defined pension plans and Social Security going bankrupt, here are five simple ways millennials can ensure they are financially ready for their golden years.

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Most millennials expect Social Security to go bankrupt before they retire, with 60 percent agreeing with that statement, according to a new survey by T. Rowe Price.1

"The thing that makes the millennial generation different than previous generations is that there will be almost no defined benefit pension plan ," says Luke Delorme, Research Fellow at the American Institute for Economic Research. "It is basically on the shoulders of workers themselves to save. In order to have enough money to retire, people are going to have to do something. They can’t just count on their employer to do it for them."

This might be fueling millennials’ saving’s rate, as they are saving 8 percent of their annual salary for retirement, which is nearly as much as baby boomers (9 percent), according the  T. Rowe Price survey that compared a national sample of 1,505 millennials with 401(k)s with 514 baby boomers who have 401(k)s.

With the possibility of limited defined pension plans and Social Security going bankrupt, here are five simple ways millennials can ensure they are financially ready for their golden years.

1. Aim High

But is 8 percent enough? As to how much a millennial should actually be contributing to their retirement account, Kristen Robinson, Senior Vice President, Women and Young Investors for Personal Investing at Fidelity Investments, recommends aiming to contribute 15 percent, especially if a twenty something has already paid off their student loans.

"Millennials could live until they are 90 or 100 years old and we want to make sure they have enough because it might have to last them longer," says Robinson.

Looking at it from a dollar perspective, undefined Delorme recommends trying to have $100,000 in a retirement savings account by the time a person is in their early thirties.

2. Use employer resources for allocation advice

Contributing to a retirement account is half the battle. For the uninitiated, determining how to allocate that money can be downright confusing. While most experts agree that millennials should choose riskier investments as time is on their side, it might not be clear what that means in practice.

"The majority of employers have resources, and they are free resources, to help their employees make really good decisions," says Robinson, who recommends requesting advice on retirement allocations from an individual employer.

"Whether they have a company like Fidelity to come on site and provide some guidance to their employees, or if they have online digital resources," says Robinson. There are also a number of websites that offer free advice on allocation.

3. Think about a robo-advisor

Another great resource for financial planning are the increasingly popular robo-advisors. These online tools will, for a much smaller fee than a real financial advisor, help pick investments and monitor an individual’s portfolio. 

"They suit the kind of person who is going to be comfortable just putting their money away….[someone] who doesn’t necessarily need as much hand holding. You don’t get to talk to someone on the phone with a robo-advisor for instance," explains Luke.

He continues that, "They ask you several questions about your risk tolerance and presumably, younger people are going to be relatively more tolerant of risk. And [the robo-advisor] will take the money and put it more in emerging markets, maybe. I think that is an important thing for younger people to do, because they have such a long time horizon so they should be invested aggressively."

However, there is one blind spot for robo-advisors: an individual’s 401(k).  Most of the bigger robo-advisors do not manage 401(k) investments. Some of the robo-advisors will offer free advice on 401(k) allocations, but only if an individual is investing other money with their services.

4. Don’t make retirement a dirty word

"I think it may feel far off, retirement or maybe that first house, but I think that being very deliberate with your money will help you achieve the life that you want to live. That means something different to everyone," says Robinson.

"Don’t let the word retirement put you off,"  says JJ Montanaro, a certified financial planner at USAA. "You should save for the future, even if you don’t agree with the concept of retirement."

Montanaro goes on to share a story of his clients – a married couple – who worked until they were 40 years old, as a physician’s assistant and a nurse. They wanted to move to the developing world and do the same kind of work, but on a volunteer basis.

"Whatever your vision of the future is, it is going to be more flexible and have more options when you are being smart early on," says Montanaro.

5. Focus on saving more, not boosting returns

"I read a lot of articles that say here is the best way to save for retirement. One guys says you need to have this specific allocation at this age and someone else says something different. Well, one of them is going to be right and one is going to be wrong and we don’t know which one is which," says Delorme, who used to love monitoring his investment returns and spent lots of time trying to boost his returns from 8 percent to 8.5 or 9 percent. He now believes that instead of focusing so much on upping percentage points, the best way to attain a healthy retirement account is simple: save more.

He continues, "The one thing we definitely know is that if you save more money, you will have more money in the end. That is what you can control."

Alexandra Talty is the Editor-in-Chief of StepFeed, the homepage of the Middle East. After leaving New York City in 2013, she used her personal finance (and journalism) skills to the world, before settling down in Beirut, Lebanon. She is also on Twitter.

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1. T. Rowe Price's Retirement Saving & Spending Study, Published June 16th, 2015
Investing involves risk, including risk of loss.
This article was written by Alexandra Talty from Forbes and was licensed as an article reprint. Article copyright 6/30/2015 by Alexandra Talty.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third party provider of the reprint permission and Fidelity Investments are independent entities and not legally affiliated.
The images, graphs, tools, and videos are for illustrative purposes only.
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