Editor's pick: Originally published Dec. 22.
The new year is the perfect time to get your retirement savings on track. But, what you should do, how you should do it and when you should do it depends on where you are in life.
Starting in your 20s and 30s is an excellent strategy. Time is on your side, and compound interest over 30 or 40 years is certainly worth the sacrifices you'll make.
But, alas, you are also in the lowest-salary years of your career and are more concerned with buying that first car or first home and having a family. And you're probably dealing with student loan debt.
The best overall advice is save, save, save.
But the advice is different for saving through the different stages of life, and Millennials need to act now to get a jump start on retirement.
"When I give seminars. I start with 20s and 30s, even though I don't think most people save in their 20s," says Laurie Blackburn, first vice president, Investments at the Speck - Caudron Investment Group of Wells Fargo Advisors in Alexandria, Va. "Start saving as young as you can, even if you save a small amount in your 20s.
"The fact that you save at all is showing discipline, and starting monthly savings and never taking it out of your retirement plan, that's what will get them where they need to go," she says.
Blackburn says young people work more different jobs than we have ever worked. If they contribute to a 401(k), they work for a few years and move to the next job. But they usually empty their 401(k) when they leave. That's a mistake, she says.
"It's not much money, so they take it out," she says. "But when you add it up, it's a lot of money, especially over time. There a lot of advantage to starting younger."
Tom Mingone, founder and managing partner of Capital Management Group, agrees that when you are younger it is a great time to get into the habit of saving.
"You are probably just starting career, so you should build the habit early of saving as much as possible into something, most likely the 401(k) at work," Mingone says. "If you start right away and put away 10% (of your salary), and get used to it, you'll probably be in pretty good shape at retirement. It is a good habit to start off the bat. When you are young, out of school and living at home, it is a great time to put money away."
"If you 're paying your own way, do 10%," he says. "If you're living at home or have roommates, max out your 401(k)."
Mingone says that, of course, how much you are able to contribute depends on how much you earn and your debts, but when you are young, you may not have a lot of bills. You may, however, be struggling with student loans.
He says it is also the time to be aggressive in your stock portfolio. It should be heavily weighted toward stocks, he says.
If you get a 7% return, your money would double every 10 years," he says. "If you put away a chunk of money and leave it in there for 30 years, it would double three times. If you get a 10% return, you get four doublings. Compounding is powerful. You can't guarantee a growth rate, but go with what works 90% of the time. An equity-based portfolio would generate better returns. Being too cautious can cost you."
Even if you don't start in your 20s, you need to clamp down when you get into your 30s, says Bob Stammers, director of engagement at the CFA Institute.
"I think in their 30s, it's time for people to start getting serious," says Stammers. "They are In their early earning years and it's important for them to start getting involved in tax-deferred employer plans or IRAs. Take advantage of those tax advantage funds as much as they can. Begin debt management. Try to get out of consumer debt and start to look at different financial obligations."
Something Millennials should keep in mind: in surveys of people who are already in retirement, their top regrets are that they didn't start saving sooner, and that they didn't save more.