Plan Early, Retire Happy

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Plan Early

By Jack Kennedy

Learn more about Jack on NerdWallet’s Ask an Advisor

For many young adults who came of age around 2008 and 2009, the financial meltdown was an experience that changed their economic worldview. A basic distrust of financial institutions and a daunting job market led to deep pessimism — and poor financial decisions — for many.

Now, it might seem like regular folks can’t get ahead. And for young adults — the so-called millennials in their 20s and early 30s — the situation seems even worse.

But guess what? It’s not true — at least, it doesn’t have to be if millennials follow a few basic financial principles.

Save, save, save

The biggest challenge people in this age group face is managing debt, primarily college debt. Saving for retirement often loses the trade-off battle, which can have steep consequences down the road. If you neglect to save during your crucial early working years, you can’t fully benefit from the power of compounded growth in your retirement savings.

It’s not always easy to save money, but consider putting yourself higher in the pecking order of monthly bills and expenses. One great way to do so is by taking advantage of any retirement savings plan your employer has in place. I tell people in this age group to put aside 6% to 10% of their earnings — or at least as much as their employer will match. These are essentially “free dollars” your employer is dangling in front of you to pocket and put aside for your retirement. Take the free money.

Polls show that many young adults do not expect Social Security to be there for them when they retire, or to be there in a large enough capacity to give them any sort of quality of living. Millennials can make this pessimism work to their advantage — by using it as an incentive to put themselves first and save a healthy percentage of their income.

Those who don’t have a retirement plan at work should consider a traditional IRA or Roth IRA. Which version is right for you depends on your age and tax reduction needs. Taking advantage of both employer-sponsored and individual retirement accounts is permitted and would be the ideal scenario, since it puts aside even more money toward a fulfilling retirement.

Live within your means

You can splurge occasionally on vacations or weekend getaways — even using a credit card or other debt instrument that helps you build good credit. But be sure to have a short time frame (less than a year) to pay back any amount borrowed. Too often, young adults put themselves behind the eight ball with a massive load of debt that they cannot repay in short order, or at all. A good rule of thumb: Splurge only after you’ve paid yourself for retirement, and splurge within your means.

Do your homework

Many young adults are suspicious of financial advisors, thinking they are only out to get them to buy unnecessary financial products — and in some instances, this may be the case.

Rest assured, though, that there are good advisors out there. Seek “fee-only” advisors who do not sell products for commissions, but rather provide a low-cost platform to invest. Interview several advisors to find one you are comfortable with. It is true that many advisors deal only with high-wealth investors, but there are plenty who work with whatever level of investment is best for you. Seek them out. Check the website of your local chamber of commerce, or simply call the chamber directly to ask for a referral. Whatever advisor you choose should be putting you in a position to succeed by setting up a plan for savings and offering mutual fund managers that outperform a majority of their peers and the standard indexes.

With a little effort upfront, you can put yourself on a sound trajectory toward a happy and fulfilling retirement.

Image via iStock.


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