The Top 10 Retirement Tips You Can Give Your Millennial

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published 13 March 2018

If you’re a parent with kids in their 20s or 30s — or any kids at all — you’re probably no stranger to worrying about their future, including their financial future.

As you watch your now-adult children venture out into the real world, though, you may see them focusing almost entirely on their financial needs in the here-and-now — paying the rent, determining just how much health or renters insurance they can afford, etc. While learning how to manage their financial needs now is important, though, they also need guidance about how to secure their future.

There are certain underlying principles you can teach your kids now that, if followed, will help them secure financial independence in another 30 to 40 years. As a financial adviser, I have witnessed firsthand how people who approach their finances as a decades-long discipline will find themselves in great shape as they approach retirement. Conversely, those who bounce through life hoping things will somehow turn out all right might find their twilight years challenging.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Topics

Lists

1. Understand the time value of money. It is the most important asset you have.

I sat my two kids down, ages 17 and 21, and explained if they contribute $5,500 to a Roth IRA every year for 40 years and earn a reasonable 7% return, they will amass a $1.2 million tax-free nest egg. Put it off for a decade (meaning they saved the same amount for 30 years instead), and the total is only $556,000 — those extra 10 years can make a world of difference. Indeed, what your child does in their 20s to plant a seed is crucial to where they will find themselves come age 60.

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2. Apply rigor and discipline to saving.

If all your Millennial can save to a retirement account is 3% of their income, they should do it, and bump it up 1% every year thereafter until you reach an IRS-mandated maximum (currently $18,500 per year for 401(k)s for those under 50; however, they’ll want to keep abreast of how this maximum may change over the course of their working years). Incremental steps make a huge difference over the course of 30 to 40 years.

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3. Build an emergency fund for unforeseen events.

Best practice is to keep six to nine months of living expenses in a savings account. If you don’t have an emergency fund, you could be forced to rely on high-interest-rate credit cards, take out a loan or tap your retirement account when the unexpected strikes.

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4. Spend within your means, not your dreams.

If your kid can resist the fancy cars and McMansions, they’ll be able to fulfill these dreams down the road. Delayed gratification is very important!

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5. Recognize life has relentless bouts of healthy friction.

Do we take that vacation this year, or save more for retirement? Everyone needs a healthy balance between living their life today and planning for the future.

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6. Protect your family adequately with life and disability insurance.

Term life policies for 20-somethings are incredibly inexpensive. Your kid should consider purchasing a 30-year term policy providing $250,000 to $1 million of death benefit, and if their employer offers disability insurance, they should take it. If the employer offers extra, they should purchase it.

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7. Invest heavily in stocks when you’re young.

When the market is down, it is on sale. They must be patient and remind themselves that every contribution they make is purchasing shares on sale. If you go to your favorite store and everything is 50% off, do you buy? Of course! It’s your favorite store! Your kids should look upon investing the same way.

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8. Nurture your career.

The best way to save for the future is to get promotions and raises. When your kid gets a raise or promotion, they should devote some of the increase to a long-term plan.

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9. When you have a cash flow improvement, approach it with thoughtfulness.

As an example, let’s assume a car loan is paid off, freeing up $250/month of cash flow. Most people do nothing, and it is like a glass of red wine in the financial bloodstream. Your child should think through how some or all of that improved cash flow can be strategically deployed for long-term savings, additional debt reduction or both.

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10. Establish a goal for a savings rate and a long-term nest egg.

I suggest young people endeavor to save 15% of their income for long-term retirement. That is the here and now. The long-term goal is for them to save eight to 12 times their pre-retirement income for retirement. Therefore, if at 60 they’re making $50,000 annually, by then, they should have a $400,000-$600,000 nest egg.

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Jamie Letcher is a Financial Adviser with LPL Financial, located at Summit Credit Union in Madison, Wis. Summit Credit Union is a $5 billion CU serving 176,000 members. Letcher helps members work toward achieving their financial goals and through a process that begins with a “get-to-know-you” meeting and ends with a collaborative plan, complete with action steps. He is a member of FINRA/SIPC, a registered broker-dealer and investment adviser.