The Millennial generation is coming into its own. According to U.S. Census estimates, Millennials have now passed Baby Boomers as the largest generation, with more than 75 million Americans falling into the 18-34 (as of 2015) age group.
With so many Millennials entering the workforce and advancing their careers, it's time to start thinking about retirement. Yes -- retirement is 30 or 40 years away for this generation, so isn't it a bit early to start planning? Absolutely not. The reality is, small steps taken now could make a bigger impact than bigger efforts closer to retirement.
And since now is exactly when Millennials should start taking steps to prepare for retirement, we asked three of our top retirement planning and investing contributors: What do Millennials need to know about retirement planning?
Here's what they had to say.
Time is your biggest investing weapon. Use it or lose it
Selena Maranjian: One thing I wish I'd known when I was as old as Millennials are today -- in my 20s and early 30s -- is how powerful my wealth-building ability was then, despite my relatively modest earnings at the time. That's because even small invested sums can grow huge, if they have enough time, and Millennials have a lot of time.
For example, a one-time investment of $1,000 made when you're 25 can grow to $45,000 by the time you're 65, 40 years later. (That's if it grows at the stock market's long-term average annual growth rate of close to 10%.) Imagine socking away just $1,000 annually for 40 years...you could end up with almost half a million dollars -- about $487,000. Clearly, you'll likely be able to save and invest more than that -- perhaps now and definitely later. Invest $5,000 annually between the age of 30 and 60, and you could end up with about $900,000. It should be clear that you have a solid chance of retiring early if you start laying a financial foundation for it now.
Another thing to understand is the importance of investing effectively. When I was in my 20s, I mostly stored my extra money in bank accounts, earning relatively little. For long-term money, it's hard to beat the stock market. You can keep it simple and effective with inexpensive, broad-market index funds that track the S&P 500. The dollars you invest today are your most powerful wealth-builders since they have the longest time to grow for you.
Develop good money habits today
Steve Symington: I agree with Selena's assertion that it's crucial to start investing early and let the power of compounding returns work for you. But for young investors to be able to do so consistently, it's equally important to learn to live within your means.
This might mean starting and maintaining a monthly budget, for example, and limiting unnecessary expenditures like eating out, that gym membership you haven't used in years, or even that daily latte, all of which can free up cash for you to sock away every month in a retirement account. And this definitely means avoiding the burden of maintaining high-interest debt, namely in the form of credit cards, which often charge interest rates well above what you can reasonably expect to earn on average each year investing in the stock market.
To borrow the words of legendary investor Warren Buffet, "If I borrowed money at 18 or 20 percent, I'd be broke."
In the end, if you can learn to live within your means to free up cash to invest consistently, and forego the stifling effects of high-interest debt, you'll be that much closer to ensuring a comfortable retirement.
It's going to be up to you what kind of retirement you have
Jason Hall: It may seem like retirement is so far away, it's not even worth worrying about now. After all, you'll probably change jobs a dozen times or more before you retire, right? That may be true, but the reality is this:
You can't count on any future income or quality of life to pay for retirement. You simply have no way of knowing what life will throw at you. But what you do know is what Selena and Steve wrote about about the time value of your retirement contributions while you're young, and the importance of developing healthy money habits early.
If you are diligent about these things, and make an effort to put money away now while you're young, healthy, and able to generate income, at best you'll be well ahead of the game in a few short years. At worst, you'll be better-prepared for the eventual unexpected obstacles you'll have to face, such as unplanned illness or injury that cause you to lose income, the impact of inevitable future recessions, and a litany of other things that could go wrong.
I'm not saying you should be miserly and put aside every spare penny. To the contrary, enjoy life and treat yourself well. Just practice some moderation, and take steps to prepare for the future. Even if it's 40 years in the future.
I can promise you this: You'll won't find anyone who says they regret having saved too much money for retirement. On the other hand, I bet you're related to someone who regrets having not saved enough.