For recent college graduates entering the workforce, priorities include bills, rent, and student loans. As a result, retirement planning is given a low priority for many young people in the early stages of their careers.
Roughly two-thirds of millennials have saved nothing for retirement, says a report by the National Institute on Retirement Security. Financial experts say any delays in saving money could mean significantly delaying retirement.
However, parents can counsel their young adult children on how and why to start a retirement plan now, before it gets to be an issue. Many workers early in their careers think retirement isn’t worth considering because it’s so far off, and they have other obligations. But getting a late start is a big mistake because they’re missing out on years of compounding returns.
Here are five tips parents can give their young adult children to help them to begin planning for retirement:
Get Going. Explain the importance of starting retirement savings when the new job starts. Although their beginning salary is low, and they have bills, they need to make saving a disciplined habit. Start small.
Understand the Basics. Linking retirement planning’s importance to a new job gives a child the opportunity to get ahead financially and can instill pride in learning some retirement basics. Young workers should learn the purpose of target-date funds, which automatically adjust how a person’s money is invested, based on their age and how near they are to retirement.
Jump on the 401(K). With pensions all but gone, kids should understand this great way to save and the importance of a 401(k) company match.
Up Contributions Over Time. You should save between 10-15% of your pay for retirement. That is usually a lot for someone in their 20s, but you can work toward it by increasing your contribution by one or two percentage points every time you get a raise.
Stay on an Honest Budget. Help them learn to budget money with three categories: give, save, and spend. This will help them to learn how rewarding it is to set a savings goal and to regularly put aside money to reach it. This is the basis for successful retirement investing.
Parents today understand that the younger you are when you start retirement investing, the more money you can have when it’s time to retire. Stress that point to your kids.
Reference: Milwaukee Community Journal (June 13, 2018) “How parents can help their kids with retirement”