The Millennial Woman’s Path to Retirement

A millennial woman’s path to retirement is not an easy one. When you’re fresh out of college, or even in your thirties, retirement seems like a lifetime away. That doesn’t mean you shouldn’t start planning for it as soon as possible. The beauty of saving for retirement while you’re young is in the compounding interest.

Basically, your money makes interest off of itself and its earnings. There’s no fighting the facts. A person who starts saving for retirement in their twenties will have significantly more than the person who started saving in their thirties, and even more than the person in their forties. The earlier you start saving, the more you will have, period.

Not everyone knows or truly understands the importance of saving for retirement as early as possible, especially young people. The CGS Team looks to close that knowledge gap! We’re sharing a realistic retirement road map that millennial women can follow as they implement saving for retirement as a new financial goal.

Starting Out

When you’re just starting out in your new job or career field, it can be overwhelming to think about your retirement options along with your other benefits.  However, this information is very important. Employee benefits can offer you additional financial security that you didn’t know you needed.

The first step in starting out on your 401k journey is to understand what your company will match. This number will give you an idea of how much to contribute. At minimum, contribute what your employer will match. This is essentially “free” money.  Once you know how much your employer matches, you can determine your contribution rate. Financial experts recommend saving 10-15% of your income for retirement, including employer match.

After you have determined your contribution rate, there are a few other tidbits you need to know. What institution is holding your 401k plan? How do you get in contact with them if you need to? How do you change your contribution rate? Does your employer also offer pension plans?  Getting the answers to these questions now will save you time and stress in the future.  Nowadays, most 401k plans can be accessed online by the owner. From online you can pick your portfolio, change your contribution rate, see your growth, and more.

If your employer does not offer a 401k plan, or you are a contract worker, open an IRA through an accredited institution like Fidelity, Charles Schwab or Scottrade. Just because you don’t have the option of a 401k does not mean you can’t start saving for retirement.

Consider Tax-Advantage Accounts

If you have the option, consider a Roth 401k. Roth basically means “after-tax”. Any contribution made to a Roth 401k has already been taxed. Since you have already been taxed on this money, you will not have to face taxes when the time comes to retire.  Sure, your contribution will be smaller, as opposed to a pre-tax contribution, but you could be saving yourself some money.

If you plan to be in a higher tax bracket when you retire (maybe you will have additional income), then paying taxes on your contribution now will essentially be less than what you pay in the future.  Since you’re young, the odds are in your favor for getting the taxes over and done with now.

There are other tax-breaks that you may be able to take advantage of.  HSAs (Health Savings Accounts) are a common benefit among employers.  Employees can choose how much money they would like to contribute to an HSA to help cover health-related expenses in the next year.  The contribution made to the HSA by the employee is pre-tax. If you have a High-Deductible insurance plan or you know you have some medical or dental work coming in the next year, you could pay for those costs with your HSA.

Picking your Portfolio

When you’re saving for retirement, especially at a young age, the assumption is that the money won’t be touched. Since retirement is multiple decades away, you and your account have the ability to ride the markets historical ups and downs without any real effect.  With the being said, a majority of your risk should be taken when you’re young.  Stocks are the riskiest asset you can invest in, but they produce the highest long-term results.

In your twenties, financial experts recommend a portfolio that consists of 80% stocks, and 20% cash, bonds, or other low-risk assets.  As you get older, the amount invested in stocks decreases.  For instance, when you reach your mid-to-late forties, your portfolio should consist of 50-60% stocks (depending on how risky you are), and 40-50% of other low-risk assets. As you approach retirement age (think mid-fifties), the stock allocation should be dialed back quite a bit.

Don’t know what you’re looking at? Getting in contact with your 401k provider can definitely help.  Also, take Fidelity’s advice: If you don’t have the skill, will, or time to manage that process yourself, consider a target-date fund or a managed account, which typically adjusts the asset mix over time. And remember to revisit your investment plan at least once a year or when your personal situation changes.” Read How I Picked my 401k Selections for more detailed information.

Save for Emergencies

An important part of retirement-planning when you’re young is saving for emergencies. How? Well, most 401k plans offer loans and withdrawals after a certain amount of time.  If a financial emergency came up, you have the option of taking a loan against your 401k balance and paying it back (through extra paycheck deductions) over a certain amount of time.  This is never recommended because the amount you withdraw is no longer gaining interest, nor being invested.

You are cheating your future self out of potential gains and earnings.  There can also be major penalties and fees for taking the money out early. Saving for emergencies allows you to cover financial pitfalls with your own funds, as opposed to dipping into your retirement account.

Consider an IRA

If you’re contributing a good amount to your 401k plan, have an emergency savings in place, and still have an abundance of disposable income, consider contributing to an IRA.  IRAs are individual retirement accounts that people can contribute to outside of or in conjunction with a 401k plan.  IRAs also come in pre or post-tax options.

There is a limit to how much an individual can contribute to an IRA ($5,000 in 2015). An IRA is a great option if you want an additional means of saving for retirement, or if you want other allocation options.  As mentioned earlier, IRAs can be opened through accredited institutions like Fidelity, Charles Schwab, and other brokerage firms.


Don’t let a lack of knowledge stop you from saving for your future. Retirement may be decades away, but the effort you put in now will truly pay off when the time comes.  Do you contribute to an IRA or 401k plan? When did you start contributing? Does your employer match? What worried you about contributing to a plan when you first started out? We want to hear from you! Leave a comment below to get a discussion going!

-The CGS Team



3 thoughts on “The Millennial Woman’s Path to Retirement”

  1. This is really sound advice! Some of the things I’ve found helpful as I work on my retirement planning are to steadily increase how much I’m putting into my 401(k) – every few months I bump it up by a percentage point. When I get an annual raise, I automatically increase my contribution by that much, so I’m putting more aside but not feeling it when I get my paycheck. My goal is to be contributing as close to the maximum annual amount as I can, which I wouldn’t recommend for everyone depending on their expenses and goals. My plan is to be financially independent by the time I’m 40, so I am doing as much as I can now to take advantage of the wonders of compound interest. 🙂

    Investing can also be a scary proposition! The market has a ton of ups and downs, and figuring out the right allocation based on your goals can be challenging. I’ve had a lot of luck with Betterment in that regard. Their interface is incredibly user-friendly, and they have you fill out your financial goals in advance, and make recommendations from there. They also do tax loss harvesting and automatic rebalancing for you, so it takes a lot of the guesswork out of the equation.

    I’m a firm believer in doing as much as possible now and reaping the rewards later. Finding that sweet spot where I’m contributing the way I want to for my future goals while also having a rich and rewarding life in the present is extremely important.

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