It’s no secret that young people rarely begin saving for their retirement until later in life, though it’s easy to see why. With a typically smaller income, most twenty-somethings put their funds directly into tuition, rent, or other essentials, while whatever’s leftover is usually spent quickly. Very few even think about retirement as they begin new careers, while fewer still save for it.
This common mistake, however, can mean the loss of valuable compounded interest, or even force a later retirement due to insufficient funds. For this reason, it’s important that parents push their young adults to begin a retirement plan early.
Looking for ideas on where to start? Here are five simple ways parents can encourage early retirement saving in their kids.
1) Start Now
It’s easy for young adults to think there’s no rush to save as they have years until retirement becomes a reality, while their often-smaller income means a majority will go towards their monthly bills. However, as they grow, so will their expenses – adding mortgages, student loans, costly insurances, and other bills to the pile – until retirement will become even less of a priority than it is now.
Saving is a lifelong habit that should be cultivated early and maintained, no matter the income. It’s okay to start small, just start now.
2) Teach the Basics
Retirement can seem a dry and distant subject for young adults, making them avoid learning the basics. But according to Mark Henry, investment advisor, founder/CEO of Alloy Wealth Management, and estate planner, understanding how to best save for retirement can instill a sense of pride and control in a youth’s life.
“Young workers should at least understand the purpose of target-date funds,” Henry says. “Many plans offer these funds, which automatically adjust how a person’s money is invested based on their age and how close they are to retirement.”
3) Utilize the 401(k)
One of those retirement basics to teach your child is how to take advantage of the 401(k). A valuable saving tool for many, utilizing a company’s 401(k) policy is a great way to put money away for one’s retirement, automatically and tax-free. At the very least, young adults should have a company’s 401(k) matching percentage be an influencing factor when deciding between jobs.
4) Save More with Time
While financial experts recommend saving 10-15% of your paycheck for retirement, that’s usually unfeasible for young adults struggling to get by. Henry’s advice? Start small with what you can afford, and then gradually increase the amount by 1-2% with each raise.
5) Budget, Budget, Budget
All in all, retirement saving is no different from saving in general – both are important, and both are easy to do with consistency. As a parent, encourage your young adult to begin budgeting early with the three essential categories: spend, save, and give. This way, they’ll be prepared for whatever life throws at them.
“Parents today know the younger you are when you begin retirement investing, the more money you can have when it’s time to retire,” Henry affirms. “They need to emphasize that to their kids, and they can teach them by starting with simple concepts and building on them over time.”
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