Financial accounts are often the breadcrumbs of our financial lives. A year ago, if you had looked through all my financial statements you would have been able to piece together my life. There was the bank account I opened in Massachusetts (where I grew up), the student loans from both my undergraduate and graduate educations, and the 401Ks from three different employers. I was in my late 20s, and my financial life had less to do with preparing me for a bright future and more to do with my past.
And I had largely been doing it right. There's a lot of hype out there about lazy millennials who don't save much or plan for retirement. I wasn't one of them. Having multiple retirement accounts was a consequence of diligently saving in a 401K account at each of my three post-college employers.
The complexity of keeping track of the different retirement accounts got the best of me. Sure, I had linked all the accounts to my Personal Capital read-only financial dashboard, so I could monitor the balances. But when I got emails from any of those 401K providers, I mostly ignored them. I trusted that the money was safe and that however I had allocated the funds years before was probably still good enough. That's what being a passive investor is, right?
It wasn't until I met with one of my colleagues, a Personal Capital financial advisor, that I learned how poorly allocated my retirement funds were. I was taking on too much risk and paying high management fees. So I did a 401K rollover -- a very adult-sounding thing to do. Thanks to the rollover, I was able to consolidate my retirement accounts into one place, rid myself of the complexity, and be best-positioned for the future.
As millennials, we are entering the professional world at a very different time than our parents did. While our parents were likely to pick one or two jobs and stick with them their entire working years, we are changing jobs much more frequently. Our parents also benefited from defined-benefit plans that placed the burden on the employer to fund retirement, while we are putting our savings in defined-contribution plans that place the burden on the employee. This means millennials are likely to have multiple retirement accounts and be responsible for investing the money well.
Even if you're doing retirement savings right, as I was, it's natural to get overwhelmed by the complexity. Instead, follow these five steps to be on the path to a financially secure retirement (with no breadcrumbs):
1. Adopt the Right Attitude
There's no magical Staples Easy Button that you can just press and have retirement planning taken care of for you. As a millennial, you have many working years ahead of you, but that doesn't mean you can make up for lost time. Research shows that waiting even five or ten years to start saving for retirement can put you hundreds of thousands of dollars behind because of the snowballing effects of compound interest. Take a can-do attitude, and be proactive.
2. Take Ownership
Half of millennials don't expect to receive a check from social security, that great New Deal-era safety net that has been supporting seniors in retirement for nearly a century. Without government largesse to rely on, some millennials expect to work full-time or part-time much past the traditional 65 year-old retirement age. I don't think it has to be like that. If you plan appropriately, you can retire on time and live the retired life you desire. But you have to start saving. You. No one else, particularly not the government, can be counted on to fund your future.
3. Get Organized
Seeing how much you actually have and how it's all allocated is critical. With a tool like Personal Capital's dashboard, you can enter all your retirement account credentials once and easily monitor your retirement savings going forward. You also should have a sense for how much money you will need to fund your lifestyle in retirement, so it's wise to check out the Personal Capital Retirement Planner. You'll be able to enter your retirement goals and see exactly how prepared you are for retirement based on your ideal target retirement date.
4. Keep Maxing Out
You can put up to $18,000 pre-tax in a 401K, which can accumulate over time tax-free. Sure, $18,000 (or $750 a paycheck) is a lot of money. Millennials are saddled with the financial burdens of staggering student loan repayments, wedding bills, childcare expenses, and rising costs of living. But, as Financial Samurai says, you need to "feel the pain" or you're not saving enough. If you want to see how much you could have saved at each age if you had maxed out on your 401K, check out this post.
5. Roll Over Old 401Ks
If you have multiple 401Ks, including some from former employers, think about rolling those old balances over to the 401K with your new employer or one consolidated IRA account. Consolidation can create more than just simplicity and ease of management. Oftentimes, you can select better investments and lower your management fees, just as I did.
Retirement is far off. But you can set yourself up for success decades from now by getting on the right path today. These five steps are the beginning of that path -- with your own bright future funded by, not constrained by, your past.