Retirement is a distant concept for millennials, many of whom would rather save and spend to achieve a desirable lifestyle today.
However, as they will need more than $1 million to retire, it is crucial they embark on an investment plan earlier in life.
To adjust their financial strategies for the long-term payoff, millennials need a mindset shift and support from influencers for their 401k retirement planning.
Here are five we’ve identified:
Set an End Goal and Checkpoints
Planning retirement and finding an income solution can be overwhelming, with reasons to quit and reasons to continue. To resist the temptation to spend the extra dollar today, they first need to establish purpose and direction by setting a financial goal.
They can begin by calculating the desired estimated monthly income for retirement. Then, they can work backward or apply the rule of 72 to break the process down into achievable segments.
The success of a financial strategy depends on his or her commitment to sticking to an investment plan through thick and thin.
Own a Personal Mantra
When the going gets tough, personal mantras, memes and social networks can assist millennials in mental strength and coping.
Warren Buffet famously said, “Someone is sitting in the shade today because someone planted a tree a long time ago.” And there’s always Aesop’s fable about the Tortoise and the Hare with the old adage to remind us that slow and steady wins the race.
Don’t be Afraid to Ask Questions
Learning something new takes time, resources, and practice. Fully 69 percent of millennials surveyed find investing confusing. Fancy jargon and overly complex charts are a major turn-off.
While millennials are the first generation whose identities have been shaped by digital technology, they need access to credible, reliable resources and financial professionals, not just the internet, to provide solutions.
Recognize your Lifestyle Needs
“I want to maximize my return,” says Anna, a millennial living in Minnesota. “And I can take more risk now versus when I’m older and I need to ensure my retirement fund will be there when I need it.”
Portfolios are likely monitored based on lifestyle needs, and most millennials’ daily lifestyles depend on brands such as Apple, Google, Amazon, Netflix, and Facebook.
Millennials can build a portfolio or investment strategy that is composed of the day-to-day brands braced by their lifestyle. In addition to trading individual securities, millennials can invest in companies they frequently engage with through exchange-traded and mutual funds that track the Nasdaq-100 Index.
Time is an important factor in any investment strategy, and the potential income lost from waiting to participate in 401K planning is considerable.
“Until recently, I didn’t want to think about it. I lived month-to-month only. Most of my friends live month-to-month,” says Jordan in Denver. “If you knew my age earning potential, I’m in a smaller subset, so I used to not watch [my retirement account] but realized over time if I keep adding money, the compounding effect is significant.”
Millennials are driven by the pursuit of short-term happiness and are often willing to devote time to multiple careers and hobbies, but too frequently do not recognize the value of allocating the same kinds of resources to their futures.
The longer one waits to begin investing, the more the opportunity for potential income from the compounding effect of interest decreases.
Millennials will likely need support from credible and reliable resources to achieve these mindset shifts, which means advisors can play an important role to millennials in their 401k retirement planning.
“I do whatever [my advisor] recommends,” says Ben in Arizona.
Will, a millennial small business owner, asked a client how he built wealth. The client explained that he started small and reinvested more each year until he became a millionaire. Will chose to emulate his client’s strategy, and saved until he had enough for his first investment.
Millennials have a plethora of options for their 401k retirement strategy, and advisors have an opportunity to be the influencers who reinforce millennials’ mindset shifts and to help structure their customized 401K retirement strategies.