Millennial wealth manager: Here are 4 great ways to start saving for retirement

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Millennials now make up approximately 25 percent of the US population and have revitalized cities across our nation, making them more vibrant and exciting. But while this group of 18-to-34-year-olds is preoccupied with their careers and city life, they also need to focus on retirement.

As a financial advisor who is also a millennial, I realize it's an easy choice to put retirement on the back burner. But planning ahead is now more important than ever. Company pensions are largely becoming extinct and Social Security benefits may not be as generous for millennials as they currently are for Baby Boomers.

As might be expected, retirement is not top of mind for most of our generation. A recent Merrill Edge report concluded that the majority of millennials say they're more likely to spend money on travel (81 percent), dining (65 percent) and fitness (55 percent) than save for their financial future.

The good news is that time is one of our most valuable assets – as long as we take advantage of it. Here are four tips for my fellow millennials to jump-start your retirement savings:

Put your money to work

Statistics show that many millennials are great savers – but we tend to hold too much cash instead of investing. Lots of millennials are risk-averse. They remember all too well the financial setbacks that hit their parents during the dot-com bubble in 2000 and the financial crisis in 2008.

It is important to remember that stocks grow more often than not over time, much more so historically than cash or bonds. According to Bloomberg, between 1956 and 2017, the average length of a bull market was 53 months and the average length of a bear market was 14 months. The average gain during a bull market was 161 percent and the average loss during a bear market was -27 percent.

Make saving for retirement a top priority

Instead of saving money that's leftover from each paycheck – if there is any – get in the habit of paying yourself first. If possible, try to save at least 15-20 percent of your salary.

Start by contributing to a 401(k) plan, which allows you to save $18,000 per year. If you are able to save even more, set up automatic transfers into other savings or investment accounts.

Many companies now offer a Roth 401(k) in addition to a traditional 401(k). Traditional 401(k) contributions are made on a pre-tax basis, but you will pay taxes when you withdraw the funds in retirement. Roth 401(k) contributions are made now with after-tax dollars, so you will not have to pay taxes on this money later on. As a general rule, if you are in a lower tax bracket now, choose the Roth 401(k) option.

Take advantage of free money

Studies show that more than half of 401(k) plans offer employer matches. Even if you cannot afford to contribute the maximum $18,000 each year, if your employer has a 401(k) match, find out how much you need to contribute to receive the full employer match.

The combination of employee and employer contributions, the tax advantages available in 401(k) plans, and the power of compounding over time can add up to a significant amount of money.

The power of compounding is magnified over longer periods, so saving as much as possible in the early years may earn you more flexibility later when new expenses arise, such as raising children or paying for college. For example, a person that contributes $18,000 annually and receives a four percent employer match could accumulate around $500,000 after 15 years. But by investing the same amount for an additional 15 years, compounding could more than triple that amount.

Invest the bonus and the raise

Millennials are positioned to receive raises and bonuses for decades to come, so every bonus or bump up in salary can make a material difference on your future nest egg. Even a few thousand dollars saved or invested each year can have a significant impact over the life of your career.

The difference between saving $10,000 each year from an annual bonus instead of just $5,000 could generate hundreds of thousands in additional savings over 30 years.

If it's not feasible to save the entire amount of a raise, aim to save between 50 to 75 percent. When you get a raise, increase your 401(k) contribution by the additional amount. If your income is $100,000 and you get a $5,000 (or 5 percent) raise, try to increase your 401(k) by $3,000 to $4,000. When you get your bonus, set aside a portion of it for a shopping spree and invest the rest.

We have the luxury of time for our money to grow. While investments can be volatile, putting your money to work and maintaining a prudent long term investment allocation can make an enormous difference in how much your investment portfolio will grow over the next 20 to 30 years.

Ryan Halpern is a wealth advisor for Brightworth, an Atlanta wealth management firm.

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