When you are young, the thought of planning for retirement rarely hits the horizon. You feel invincible and preoccupied with building an exciting career. But with the rising cost of living and longer life expectancies, millennials are at risk of working to survive way into old age.
Nevertheless, here at Sun Life you can find a lifetime financial partner to help you prepare for a financially secured and independent retirement.
Ready to start? Here are five steps you can take to help you prepare in the brightest possible way:
Step 1 - Know your magic number
Planning for retirement is about ensuring you have enough funds to cover for your expenses as well as loved ones upon retirement.
How to do this: Start by figuring out how many more productive (e.g. working) years you have left to work. If you're 25 and plan to retire by 65, you have 40 years to hit that magic number. Then look at your lifestyle and imagine how it will be when you retire. Experts say that you need at least 20 times your current annual expenses to maintain your way of life today.
Step 2 – Start saving now
If you are 25 and already saving for your retirement, you could be reaping 40 years-worth of 'compounded interest' or accumulated growth of your money. For the earlier you start saving, the bigger the nest you can build.
But sometimes, life gets in the way. So you should also prepare one for emergencies. From health problems to unemployment, be sure to protect your hard-earned savings from bearing the cost of a crisis.
How to do this: Every pay day, set aside money for emergencies, retirement, and your savings. It would also help if you use auto-debit facilities that automatically transfer your money to your retirement AND emergency funds.
Step 3 – Avoid debt traps
Financially savvy millennials want to pay off debts as quickly as possible because compounded interest works both ways: in favor of young investors but against young borrowers.
How to do this: Don’t spend more than you earn. Sticking to a monthly budget is the most reliable way to avoid being trapped in a cycle of debt. If you are carrying credit card debt, make it a priority to pay it off as soon as possible.
Step 4 - Protect yourself and your loved ones
Life insurance serves as a safety net for your family and dependents. It can also provide living benefits in case of unexpected events, such as income loss. Since insurance premiums are generally lower when you are young and healthy, getting one soon as you are earning your own money is ideal.
How to do this: Find a reliable financial partner. For instance, Sun Life offers a wide variety of products that will suit your budget and circumstances. From traditional life insurance policies that earn dividends and endowments to Variable Universal Life (VUL) insurance that include an investment component, as well as health-oriented insurance products that fit your changing needs.
Step 5 - Build an investment portfolio
As soon as you have worked out your emergency fund, life insurance, and savings, what you have left can be used for investing. Since you have time on your side, investment opportunities can help grow your retirement nest.
How to do this: Consistency is key, as even small amounts could grow over time. One way to do this is via mutual funds care of the Sun Life Asset Management Company Inc. (SLAMCI). It’s a great and cost-effective way to diversify your retirement nest under the guidance of professional fund managers.
Investing pays off in the long term and doing it at a younger age will make you reap the benefits of having a longer investment horizon. The more important thing in investing is not the amount of money that you are putting in – rather, it is more about how long you will be able to sustain doing it for the long haul. When is the best time to invest? The answer is always now.