Five Retirement Savings Tips for Your Kids

Concerned your kids are not properly preparing for retirement? You may have a good reason. According to a Business Insider website article, “Only half of Gen Xers have a retirement account, and that’s a catastrophe in the making.  And only 36 percent of Gen X is actively saving for retirement.” (Millennials, on the other hand, seem to be starting retirement saving earlier and are more actively saving.)

Let me give you a few facts and insights. 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.

5 Tips to Give Your Kids 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 leftover at the end of the month. It does not work. At all.
2. Give until it hurts. Maybe saving $100 a month sounds reasonable and comfortable. I strongly suggest you start saving $200 or even $500 per month. 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.

1. Invest into a 401(k) or IRA. These accounts give you a tax deduction upfront 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.

   Another great reason to invest in a 401(k) is matching. Many companies will match their employees’ retirement contributions, up to a certain point. Don’t throw away free retirement money.

2. Invest 100 percent of the money 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 percent over any meaningful time period throughout economic history.
3. Understand the power of compounding interest. It doesn’t especially matter how much you save, but for how long you save it.

Let’s assume somebody invests $100 per month into a 401(k) or IRA and places 100 percent of the money into the stock market.

The first number is the age you start investing.  The second value is the amount of your own money invested.  The third is the final value at age 65.

Age 20 /  $54,000 Saved/   $948,000 Final Value
Age 30 /  $42,000 Saved/   $357,000  Final Value
Age 40 /  $30,000 Saved/   $130,000  Final Value
Age 50 /  $18,000 Saved/   $42,000  Final Value

Whoa. That is eye-opening. Even for me.

One last tip for talking to your kids — encourage them!

Rather than telling your son or daughter they are not saving the right way, encourage them to start saving something!

Be Blessed,

Dave