Whether they’re worried about credit card debt or just don’t have enough stashed away in a savings account, millennials face many financial obstacles that prevent them from saving for retirement. Setting aside money for retirement may not be at the top of this younger generation’s priority list when it comes to budgeting and organizing their finances, but there are several perks younger investors enjoy that many aren’t taking full advantage of during their prime earning years.
Here are just three benefits millennials enjoy when saving for retirement:
- Affordable Fees on Mutual Funds and ETFs
People looking to invest in mutual funds and ETFs typically pay fees based on the type of account they are maintaining and the amount of the deposit. However, some recent reports by Morningstar reveal that the average fees investors now pay has dropped significantly in the last 10 years, allowing for a significant increase in the value of the portfolio. Passive index funds, in particular, are attractive to millennial investors since these tend to perform better and now cost less than they did even a few years ago. According to Morningstar analysts, U.S. investors paid lower fund expenses in 2015 than ever before which is indicative of a positive trend
- Effects of Compound Interest
The markets are always fluctuating and any type of investment is never without any risk. While there is no guarantee that a certain type of account opened now will generate a very high yield come retirement age, investing when you’re younger does provide the advantages of time. Millennials who get into the habit of saving as much money now will find it easier to earn interest on the initial deposits as the years go by because of compound interest.
Even during years where returns are low, the savings rate will remain the same and accounts will continue to earn interest on the principal and future deposits. J.P. Morgan’s Guide to Retirement reveals the benefits of saving and investing early. Slide 16 of their presentation reveals that someone who ends up saving a total of $400,000 at a 6.5% interest rate between the ages of 35 to 65 would end up with a portfolio valued at $919,892. Meanwhile, a millennial who starts at 25 instead of 35 with the same investment and same interest rate ends up with a portfolio valued at $1,870,480 — almost double the return by starting 10 years earlier.
- Access to More Resources About Investing Education
It’s now easier than ever to educate yourself about investing and learn about the value of stocks, investment, and retirement accounts. Millennials who are even slightly interested in setting up a retirement account have access to a wealth of resources that allow them to make smarter financial decisions when they are younger and learn about their retirement account options. Many already use personal finance and budgeting apps to keep track of their expenses and set savings goals. They might also seek out books and other resources about financial literacy to keep up with the times and make smart financial decisions for themselves.
Millennials enjoy several advantages over other age groups when it comes to setting savings goals and planning for retirement. Those who take the lead on planning for retirement while they are still in their 20’s or early 30’s can look forward to building up an attractive nest egg if they make smart decisions today during their prime earning years.