As part of the millennial generation of 83 million people, you’ve been establishing your footing in the workforce for years. It’s not too early to start your retirement planning. Getting started as an adult came with a one-two punch from the stock market crash in 2000 followed by the financial collapse of 2008. It’s no wonder many millennials have little faith in the establishment’s stock markets for the insiders. Until recently, your adult life has been a struggle to find and hold onto employment, pay off student debt, and buy your first home.
Eye on the Prize
Despite early setbacks, millennials now bring to the table a diverse set of skills, tools, and attitudes that is transforming challenges into opportunities. Each individual contributes a unique combination of technology savvy, higher education, and entrepreneurial drive. Millennials see the world much differently than any generation that came before them. Big paychecks and approval from a boss are not the rewards at the end of the rainbow. For most, the new view is a desire to make a meaningful contribution, retire early, and enjoy what life has to offer on their terms. Multiple studies show millennials intend to retire in their early 60s or even late 50s. Millennial retirement planning is starting now.
When you are in your 20s or 30s, another 30 years seems like another lifetime. However, it will be here sooner than you realize. When you do exit the everyday work grind, what do you want that will be yours and only yours? Do you want to travel without money worries? How about contribute time and money to your favorite social causes? Do you want to spend time with your family and care for them? Or maybe just get up each day and do something enjoyable? There are as many dreams as there are individuals. Unfortunately, few dreams come true without financial security.
Millennial Retirement Planning + Entrepreneurship
Funding your early retirement isn’t DNA science. However, it takes some determination along with action on your part. The basics are thinking long term using tax-advantaged retirement accounts. This allows you to grow wealth faster with compound earnings. It should be intuitive that getting started early with smaller contributions is a better strategy than having to save larger amounts later in life. Roughly, for every 10 years that you delay starting, you’ll have to save double the amount. Retiring early and with ample money is about making the math work for you.
Something unique to millennials is they have learned the value of having a side hustle. For many, a side hustle was essential to first paying off mountains of student debt and then buying a first home. Now that you know the power of an entrepreneurial side hustle, learn about the tax advantages it provides to fuel your early retirement. The biggest tax advantages are the ones that you control with a Solo 401k or Checkbook IRA.
Self-Directed Retirement Accounts
A Solo 401k is the most powerful retirement account you will find for tax advantages. What makes this different from an employer-sponsored 401k account is that you must own a business. However, these days the business can be small and simple. That means millennial retirement planning has unique advantages over other generations.
The IRS definition of a business accommodates almost anything that produces an income (it doesn’t even have to be profitable). It can certainly be something fun and that you enjoy doing. The almost limitless possibilities include:
- Manage social media for small businesses.
- Side gigs at places like Fiverr with potential six-figure earnings.
- Sell photography to stock photo websites.
- A drone service for aerial photography.
- Personal chef or catering.
- Rent your spare room on Airbnb.
- Open an eBay store.
- Drive for Uber or Lyft.
Checkbook Control Your IRA
A Checkbook IRA gets you started today, without even needing to own a business. These have been around since the 1980s as a way to manage your own retirement – far away from Wall Street. It opens your investing choices to almost anything you choose (with real estate and Bitcoin being among the favorites).
We all know that well-chosen real estate investments are reliable, tangible, and safe investments with tremendous growth potential. Checkbook IRAs don’t have all of the Solo 401k tax advantages but congress provided Checkbook IRAs with the significant incentive and intention of being separate from other retirement accounts such as a pension or an employer-sponsored 401k. This independence assures your retirement years will also be your golden years. And of course, your contributions are tax-deferred so that what would have been paid as taxes instead fuel your retirement account.
Before deciding between a Checkbook IRA and a Solo 401k, you want to fully understand how much more of your money can be contributed to a Solo 401k for better tax advantages. Allowable Solo 401k contributions have consistently risen over the years much more than allowable IRA contributions. The 2020 annual contribution limit is $57,000. This is an important way that the wealthy take full advantage of tax laws. Even if you can’t contribute the full amount starting today, you can plan for the future as you grow wealth and the tax advantage becomes more important to growing and preserving your wealth.
How to Start Retirement Planning Right Now
Don’t procrastinate in taking the full tax advantage provided by these retirement accounts. Understandably, millennials want to spend some of their money now. But in life, after school loans, after tough employment conditions, and after buying a home, contributing to retirement is the next priority. Time works either for you or against you. You can begin with a smaller amount today that builds tax-free for decades or double the amount you need to save starting ten years from now. Millennials need to begin retirement planning now.
If you change jobs, don’t leave your employer-sponsored 401k unattended. A change in jobs is a very good time to take full control of the retirement investment you have built up at a previous employer. During your career, you’re likely to change jobs several times and leave behind unattended retirement funds each time. A CareerBuilder survey found that by age 35, a full 25% of employees had already transitioned through 5 or more different jobs.
Your Money, in Your Control
The financially-wise strategy is moving the funds with a Solo 401k rollover where you can easily keep track and manage the growth. Very likely, you’ve already made some good decisions about your money and are now looking at what your golden years could be like by taking full control of all your accounts. You probably did some research when you first set up those old accounts. Don’t leave them on autopilot for the next ten years without a long term strategy.
Your situation is as unique as you are an individual. As part of the millennial generation, your retirement planning is individual as well. A Solo 401k empowers you to make your own decisions. You want to be responsible for your own risk tolerance rather than the risk of Wall Street. Keep more of your money by paying fewer taxes. You want to get involved and stay involved with your financial future. There is no better solution to your situation than a Solo 401k retirement account if you want to begin your golden years as soon as possible.
Have questions about growing your retirement account? The 401k experts at Nabers Group will help you get your retirement funds into your control, where they belong.