The importance of saving for retirement cannot be stressed enough, especially to younger generations. Of course, these generations may have other things on their minds. They often have student loan debt to resolve, want to buy a home and possibly start a family. So, is it possible to start saving for retirement while accomplishing these goals at the same time? The answer is yes, and consulting a financial planner can help provide a clear pathway to achieving these goals.
“I get a lot of referrals from parents asking if I can help their kids, who are typically millennials and Generation Z,” said Tim Buggy, retirement planning specialist at First Advisors, LLP. “They often have a lot of college debt, so they’re stuck between trying to pay off student loans and saving for retirement. But just because they have debts to pay doesn’t mean they can’t try to do both.”
In fact, according to the most recent annual retirement report by Goldman Sachs Asset Management, Diving Deeper into the Financial Vortex: The Generational Divide, based on more than 5,200 people surveyed in 2023, the millennial and Gen Z generations reportedly have positive momentum when it comes to seizing the opportunity to get an early start on saving for the future. The survey also highlighted the progress plan sponsors have made in encouraging younger generations to begin saving early with diversified portfolios through automated, cost-effective solutions.
“If they’re working for a company that offers a 401(k) with matching, at the very least, I advise them to put in the minimum amount necessary to get the match because that’s free money, and it gets them started on saving for the future,” said Buggy. “I also tell clients, when they get a raise, to try to do a little bit of an increase.” These plans include automatic enrollment, automatic escalation, and default professional asset allocation strategies. “A key benefit for the younger generations is that they have time, and it’s a wonderful thing to have 30 or 40 years to save for their retirement years,” noted Buggy. “Even if it’s a small amount, it pays dividends down the road. You’re missing out if you don’t get started early. At least get something in those plans.”
Buggy also advises his younger-generation clients to focus on time in the market. “I stress to my clients it’s about time in the market, not just buying when prices are down. I suggest they pick a target retirement date, then choose the longest fund available in their 401(k) plan. That will give them the most time to let the target retirement funds do the work for them.”
By taking advantage of this type of advice and the innovative ways to contribute to retirement plans available, these younger generations can be proactive in managing their finances. The results were clear in the aforementioned survey, which reports that 67% of millennials and 60% of Gen Z have a personalized plan for retirement. It also noted that 69% of millennials and 68% of Gen Z report their savings are on track or ahead of schedule. In contrast, 45% of Gen X and baby boomers report they do not have personalized retirement plans, and their savings are behind schedule. An early start is key to a successful retirement plan. Early savings can potentially result in 68% higher savings than people who wait until they are 10 years into their careers.
Debt presents challenges for each generation, often making it difficult to plan ahead for the future. While Buggy encourages his clients to start saving for retirement early, he understands the need for paying down debt and offers the following advice. “I always stress the importance of budgeting to manage debt, which is the first key to success. Focus on the debt with the highest interest rate, and create a budget designed to pay that off first.”
Of course, we’re all human, and it’s easy to fall into the debt trap. “When kids get out of school and aren’t making a lot of money, it’s easy to fall into the debt trap,” acknowledged Buggy. “Christmas comes, and they want to buy presents, then something else comes along, and they just don’t pay attention sometimes. That debt compounds and becomes a challenge. That’s when it’s necessary to come up with a game plan to eliminate the debt and begin saving for the future while staying within their budget.” Buggy also advises his clients never to borrow from their 401(k) to resolve debt, as it leads to negative tax consequences.
Fortunately, the future looks bright for the millennial and Gen Z generations overall. According to the report Diving Deeper into the Financial Vortex: The Generational Divide, despite the heavy toll of student loans, home buying, and caring for children and parents, 68% to 69% report being on track thanks to a proactive approach in developing a personalized financial plan.
As a retirement planning specialist, Tim Buggy understands that planning for retirement can often be confusing and time-consuming. He offers educational webinars on a variety of topics, focusing on income planning and asset preservation.
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