PREPARE FINANCE

UNDER 30? WHO WANTS TO BE A MULTIMILLIONAIRE?

WRITER: THOMAS H. RUGGIE, CHFC, CFP

RETIREMENT SAVINGS MAY BE YOUR LIFELINE

If you’re between 20 and 30 years old, odds are you haven’t thought about retirement. If you have, student loans and credit card debt may provide a set excuse why you can’t save money right now, much less plan for your golden years.

So why do you need to save for retirement? Because lucky for you, chances are good you will live to a ripe old age. And when you’re approaching 60 and 70, you may want to do something other than work.

Those in the Gen Y, or millennial, demographic can no longer count on receiving Social Security benefits after a certain age. And if you do, most likely there will not be enough to live on.

Truth is, the earlier you start saving for retirement, the better. The more time your investments grow, the less money you have to stash away in the first place. Albert Einstein famously declared, “The most powerful force in the universe is compound interest.” But the magic only happens by consistently saving over time.

Consider:

Make saving a way of life

You work hard for your money, and with the economy just beginning to recover, your paycheck may not accurately reflect your achievements. At the same time, you may find a dizzying array of ways to spend. Maybe you are saving for your first home or have one baby or more to provide for. Even the dog needs to be fed. How do you get started?

Pay yourself first.

Saving may be easier than you think. Invest the money you would spend on one decaf mocha latte a day. Pack lunch a few days a week. Save $5 a day, $35 a week, and pretty soon, you’ll see real savings adding up.

Kick Off Your Retirement Savings

• If your current job offers a 401(k) plan or other employersponsored fund, start contributing even if you can only contribute a small amount. Ideally, at this age, contribute up to what your employer will match. Later, you can begin maxing out your contributions.

• Begin building an emergency fund to serve as your safety net in case of car trouble, sudden job loss, medical emergencies, or other unexpected expenses.

• Try to pay off “bad”, high-interest debt (like credit cards) as you steadily pay down “good” debt (student loans, mortgage, and possibly a car payment). High interest debt can cost you thousands of additional dollars that could go in your pocket later on.

• Knowing why to save and creating a roadmap for your journey to retirement will help keep you from taking unpleasant and costly detours. Consider working with a team of professionals to ensure proper management of your retirement assets and effective retirement planning. Possible members of your team include your fee-based financial advisor who can help you with portfolio design and other investment decisions, your tax professional who can help you to minimize income tax, and an estate-planning attorney.

• Talk about the benefits of other goal-based investment accounts, including an IRA. Whether you choose a Roth IRA or traditional IRA, you will need to choose how to invest the money. Choosing from the entire universe of investments is more intimidating than selecting from among a few mutual funds in a 401(k) plan, so proceed carefully. Whatever you do, resist the urge to do a lot of trading. Even if you get lucky, commissions and fees will eat up your returns, especially when you’re starting out.

Your financial planner can also discuss options such as short-tolong-term accounts, which are more liquid and can be used to take advantage of future opportunities or emergencies.

Credit where credit is due

Monitor your credit score and pay your bills on time to avoid marks on your credit report. You will get lower interest rates and better deals.

Breathe easy

You don’t have to reach all of your goals at once. However, it is better to start saving for retirement early. It allows your money to work for you.

Making a commitment to start is the hardest part. So, what are you waiting for?