Young working adults are facing a tough financial future. According to Yahoo.com, an early or even on-time retirement is not looking realistic for today’s youth. According to the article, 10% of 2008 college alumni graduated with $40,000 or more in student debt. In addition, the median income for 25-to-34 year olds in 2009 was $50,199, which is 7.6% lower compared to 10 years prior and adjusting for inflation. As of right now, there are three challenges facing Generations X & Y in retirement:
- Pension, What’s that? – Many employers are not offering sponsored defined benefit plans to employees anymore, which would guarantee an income to depend on when they retired. For those that won’t be getting pension payments when they retire, make your own pension plan. Start saving NOW. Put whatever money you can in an investment account. Make it your nest egg.
- Smaller Social Security Checks that will come later – There are changes looming to the Social Security system and what they will be, no one really knows. Some financial advisors aren’t even counting on income from Social Security to help plan retirement for clients who are 40 and younger. They suggest you will need to increase your savings by 10% to 12% in order to cover the 25% to 35% of retirement income that Social Security currently provides.
- Savings will be Taxed Later – With taxes on the rise across the board, tax on savings is most likely going to increase. In order to avoid taxes in the long run, make sure to save your retirement cash in a Roth account, from which you can withdraw money in retirement tax-free. If your employer offers a Roth 401(k) account, invest in it. If they don’t, speak to HR and see if they will add it.
These three trends in addition to an already grim economic situation will add up to even more financial challenges down the road. But you shouldn’t give up hope of a comfortable retirement. Follow the tips in this post to help prepare for these challenges. If you see you are steering off course, keeping your eye on the target will get you back on track. Check out online retirement calculators to estimate your target retirement amount. The WealthRuler at TDAmeritrade.com allows you to set a retirement age of over 30 years from now so you can adjust your monthly savings accordingly.