Congratulations graduates! You are liberated, on your own and starting that new job. Now is the time to plan for your retirement.
Suppose you want to retire at 65. Based on current data you will live to around 95, therefore you need to fund 30 years of retirement. So, start NOW. Remember, compounding interest is your best friend in investing.
If your company offers a 401(k) or similar retirement plan, jump on it! Ask if the company “matches” your monthly contributions. So, if you contribute 5% of your salary each month, your company will match that 5% contribution. You don’t need a college degree to understand that is “Free Money.” Always contribute enough to obtain the match.
If you have the option to select a ROTH 401(k), take it! There are many reasons while this is probably the better choice over a traditional 401(k). Next, diversity your portfolio with a mix of Stock Index Funds and Bond Index Funds. Start with about 85% Stocks.
If your plan offers a “Retirement Date Index Fund,” choose it and simplify your investing life. You pick a retirement date, such as 2060. The 2060 Retirement Fund will automatically adjust your investment portfolio the closer you get to 2060. For instance, the fund starts off with 85% in stock and 15% in bonds. By 2060, the fund would have automatically adjusted to 60% stocks and 40% bonds. (Bonds are used to steady your portfolio, when stocks go up, bonds go down and vice versa).
Final advice – do not go crazy spending your newly obtained pay check. Get those student loans and car paid off, set up a budget, live with a roommate, work hard and start investing!
The Financial Coach at Capital Budget Strategies, LLC, Austin’s best online Financial Coach, can help. For new or recent graduates, we offer a special of only $99, where our Financial Coach will hold a one-on-one Zoom Video Conference and help you get financially organized. We will discuss financial budgets, credit card debt, student loan debt, car payments and credit scores. Give us 4 hours and we will put you on the path to a financially secure future!
In 2060, you will want to thank me. I do not expect to be around, so I will say it now “you are welcome.”