7 millennial money moves to make before middle age

Millennials — those between the ages of 18 and 34 — are entering adulthood with unique financial challenges, from record levels of student debt to anemic wage growth. But they do have one advantage over Gen Xers and baby boomers: time.

That will come in handy, as growing life expectancies mean they can expect to enjoy a longer retirement than the generations before them. In fact, a recent report from JPMorgan Asset Management on millennials and money concluded, "Many will have to finance retirements that are longer than the number of years they work."

But when it comes to retirement, many of those under 35 may need a reality check. About 70 percent of millennials said they expect to spend less than $36,000 a year in retirement, according to a recent survey by the Insured Retirement Institute and the Center for Generational Kinetics. That's far less than the average annual expenditures for people ages 65 to 74, which topped $46,000 in 2013, the Bureau of Labor Statistics found.

The silver lining? Thanks to their youth, millennials still have decades to lay the foundation for a successful — and realistic — retirement, if they make a few key financial moves before they hit middle age.

—By Lucy Maher, special to CNBC.com
Posted 2 Nov. 2015

Some call it saving for a rainy day. But in reality, an emergency fund is meant to float you in case of a job loss, health emergency or unexpected major expenditure. The benefits are many: start one and you likely won't have to max out your credit card, dip into your 401(k) or take out a high-interest loan that could take years to pay off as a last resort.

Jason P. Flurry, a certified financial planner and president of Georgia-based Legacy Partners Financial Group, recommends setting aside enough in a savings account to cover at least three to four months' worth of core expenses (think rent, insurance, groceries, gas, and utilities and other bills). "The goal is liquidity, not return."

Still, even in this low-interest rate environment, there are some high-yield savings accounts. While the national average percentage yield for bank savings and money market accounts is about 0.49 percent now, according to Bankrate.com, some institutions like Ally and Synchrony are offering yields of 1 percent or more.

Many employers don't just offer retirement accounts to employees, they also provide some type of match. So for every dollar you contribute, your employer will add another 50 cents to a dollar, up to a certain point (often 3 to 6 percent of your income). Even if you can't max out your retirement account contributions — the limit for 2015 and 2016 is $18,000 for 401(k)s and $5,500 for IRAs, if you're under 50 — be sure to contribute at least enough to take advantage of any employer match.

A lot of employees are missing out: A Financial Engines report published in May found that more than 1 million of the 4.4 million employees it tracked were not contributing enough to get their full employer match.

And as you get bonuses or raises, apply them toward savings instead of increasing lifestyle expenses, said Becky Krieger, a certified financial planner and senior director for wealth management teams at Edina, Minnesota-based Accredited Investors.

The average U.S. household owes $16,140 in credit card debt. And with the average variable interest rate at 15.72 percent , those households are paying about $1,000 just in credit card interest a year. Financial advisors agree it's better to invest that sum and benefit from compound interest, especially for millennials who have more time to see this money grow.

But eliminating credit card debt is easier said than done. A few time-tested strategies include opting for a balance transfer to a low- or zero-interest card, making biweekly payments and consistently paying more than the minimum balance.

And while you're at it, make sure to build and maintain a good credit score, or one that is above 700, which can help you obtain mortgages, car loans and other credit for low interest rates. If you can't pay your credit card balance off within a month, which is ideal, be sure that what you owe is less than 30 percent of your total credit limit. What you've borrowed compared to the total credit available to you (also known as your debt utilization ratio) counts for a whopping 30 percent of your percentage score.

"Learning to avoid the temptation of blowing through credit early in life will help you avoid a lot of the problems people have that ruin their finances later too," said Flurry. "Use credit cards for points or when you need to in a hardship situation, but get them paid back down as soon as possible. That will keep your credit scores and financial statements healthy."

Earlier this year, a survey from Caring.com found that only a little more than half of parents have a will and, of those, 60 percent haven't updated it within the last five years. That's a problem, say advisors.

"If children are involved, a will is a must-have," said Flurry. "And if you've been divorced and/or remarried, a will is needed to clarify how things should be distributed between everybody involved."

Even if you don't have children, and think you don't have much money to leave anyone anyway, a will can be important. Your bank balance may be low, but don't forget about retirement accounts, life insurance policies and other assets (a home or an investment account).

Even though student loans tend to have an extended payment plan and low interest rates and, as uncollateralized loans, have no ties to assets like property, it's a good idea to scratch them from your balance sheet as soon as you comfortably can. Doing so will allow you to invest that money rather than paying interest on it.

You might consider an income-driven repayment plan that allows for some loan forgiveness and can reduce monthly student loan payments. These plans — income-based repayment (IBR), pay as you earn and income-contingent repayment — are designed to help make student loan debt manageable by calculating a borrower's monthly loan payments based on their income. And after 20 to 25 years of on-time, qualifying payments, your remaining loan balance may be forgiven. (Find out more at studentaid.ed.gov.) It's worth noting though that while these plans can help free up cash, it can also take longer to pay off the debt so you may end up paying more in interest if you have a balance that you'll pay off before it can be forgiven.

Another option if you have a good credit score is to refinance your loan at a lower interest rate. You can compare loan rates and options on sites like MagnifyMoney.com.

You may have been waiting years to buy your first set of wheels, but if you live in a city with good public transportation, it might make more sense to invest the money you'd spend on car payments, insurance and maintenance, and take the subway. Tempted to splurge on a new set of living room furniture? If you're still renting, be aware that it may not all fit in that home you hope to buy in the next few years, and resale value is not guaranteed (and diminishes quickly once there's wear and tear).

"If the purchase is a large one, usually placing a period of time between when the desire pops up and when you make the actual purchase helps remove some of the emotion, making your choice to move forward more logical than emotional," said Flurry. "More importantly, you may find that what you wanted so badly a few days ago or a couple of weeks ago isn't as important to you today as it was at that moment. By delaying your purchase you saved yourself the money and the regret of making an unwise financial decision."

While some millennials may think of insurance as a responsibility they'll have down the line, risk management is just as important when you are 35 as when you are 75. That includes not just health insurance, but life and disability insurance too. The added benefit of buying insurance before age 35? In some cases, you'll be able to lock in low rates.

When you're considering life insurance, the first question to ask is whether your death would create a financial hardship for a surviving spouse and any children in terms of lost income. If someone else depends on you financially, you may want a life insurance policy to ensure they're taken care of if something happens to you.

Many mid- to large-sized employers offer health, disability and life insurance for full-time employees. But be sure you crunch the numbers and sign up for the policies that make sense for you and a spouse, or family, if you have one.