Why Every Millennial Should Start Saving For Retirement Now
Planning for retirement is something I never thought I would consider until well after I bought a house, took a perfect full-time job and had all the fun I intended to have in my 20s.
It always seemed like the 401(k) or pension was just something about which your grandparents spoke. Unfortunately, our retirements won't be as clean-cut as they were for the generations before us. We do not work in an era of pensions and we sure as hell won't see the money we put into social security from our hard earned paychecks.
The reality is that we cannot and should not rely on our employers or the government to help us once we hit that golden age of 65. The 401(k) is still a great investment to have, especially if your company matches a certain percentage of what you save. However, jobs with complete benefits are hard to come by these days. Luckily, there are great alternatives for planning for the future. This is why every millennial needs a Roth IRA.
What is a Roth IRA?
The Roth IRA is an individual retirement account allowing a person to set aside after-tax income up to a specified amount each year. The best part is that both earnings on the account for more than five years and withdrawals after age 59.5 are tax-free.
Who should have the Roth IRA?
If you are an individual who expects to make more money when you are thinking of retiring than you currently do now, this is for you. You can contribute to it at any age, just so long as you have earned some form of income that can prove with a pay stub.
What are the eligibility requirements?
The maximum contribution that you can add to the account is $5,500 per year. If you make less than $114,000 annually as a single head of household, you can make the maximum contribution. If you are married and file joint taxes, you must make less than $181,000 annually to contribute the maximum. If you make more than either of those amounts in your personal situation, you can still partially contribute up to a certain earning bracket.
What are other great benefits of the Roth IRA?
You can also withdraw from your Roth retirement account before retirement age if:
1. There is a death or disability of the account holder.
2. You can use up to $10,000 penalty free to purchase your first home.
3. If for higher education, you can avoid a 10 percent early-withdrawal fee. However, you will still be hit with an income tax.
Still not convinced?
According to TIME, the amount of money you should have saved for retirement at age 65 is 11 times the annual pay of your final year of employment. If you were to start a Roth IRA in your 20s, you will have four decades of tax-free compound growth.
Trust me — I understand the financial struggles that our age group faces every day. But, the good thing about the Roth IRA is that you can donate a minimum as well and change it over time as you earn more money. It doesn't hurt to start thinking about your future, when you will gain even more financial responsibility. Just set aside a little bit, go to your bank or financial institution of choice and start a Roth IRA. You will not regret it.
Photo via We Heart It
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