Dave Kennon, Kennon Financial
Concerned your kids are not properly preparing for retirement? This week I going to explain what they need to do now, in order to be prepared for then. I figured with the Thanksgiving holiday family will be around, and it’s as good a time as ever to broach this subject.
I usually expound on how many retiring Baby Boomers are worrying themselves sick about running out of money. I discuss how many retirees are in much better shape than they realize. I reveal ways how you can get the most life out of your money. I encourage you to empower yourselves to live the retirement you deserve.
But let’s also make sure your kids will be financially prepared for their retired years. Remember, you never stop being a parent.
During a meeting last week, a man, late into his 80’s, remarked to me, “Dave, I’m worried about my kids. They can’t seem to get it together. I’m worried about them and wonder how I can help.”
I inquired, “How old are your kids?!”
“70 and 68,” he replied.
You never stop being a parent.
(Going forward in this article I will be addressing your kids directly.)
5 Tips Your Parents Want You to Know About Saving for Retirement.
1. Pay yourself first. This simply means that the money you are saving should come automatically out of your paycheck or bank account. Do not promise yourself that you will save whatever is left over at the end of the month. It does not work. At all.
2. Give until it hurts. Maybe saving $100/mo sounds reasonable and comfortable. I strongly suggest you start saving $200/mo or even $500/mo. Choose a number that feels a little scary and uncomfortable. You can always lower the amount if it ends up being too much.
Most people adjust quickly to their new savings plan and find they are able to save more than they first thought. In my experience, few people increase their contribution once they start.
3. Invest the money into a 401k or IRA. These accounts give you a tax deduction up front and defer taxation until you withdraw the money. In addition, by using a retirement account the money is more “tied up” than normal savings. This might make you hesitate to use money from your retirement accounts for non-retirement reasons.
4. Invest the money 100% in the stock market. Don’t make this more complicated than it is. We are talking loooooong term investing here. Stocks have been returning an average of 10% over any meaningful time period throughout economic history.
5. Understand the power of compounding interest. It doesn’t especially matter how much you save, but how long you save it for.
The table below assumes somebody invests $100/mo into a 401k or IRA and places 100% of the money into the stock market.
Age Saving Begins If you save $100/mo Age 65 Nest-egg (with investment returns)
20 You saved $54,000 $948,000
30 You saved $42,000 $357,000
40 You saved $30,000 $130,000
50 You saved $18,000 $42,000
Whoa. That is eye-opening. Even for me.
My overall advice: Just start with something. You’ve got this!
Feel free to share this email with your kids. I have also included a short video presentation of these concepts if they prefer watching a video. (click here for video)