First, recognize the challenges young professionals may face
Those starting their career often face two challenges in establishing their nest egg. The first is feeling that they have all the time in the world to save for retirement. The second is that young adults are balancing numerous priorities with their newfound financial independence. Acknowledge and be realistic about these hurdles, even as you make the case for setting aside money for retirement.
Then, outline the key reasons for making retirement savings a priority
- Retirement may come sooner and last longer than they may think. The average American can spend any time between a few years to over 40 years in retirement. And while some retirees choose to continue earning a paycheck, the majority are relying on their savings to cover expenses. This means the costs to live the way you want in your later years – traveling, pursuing your hobbies, engaging with family – can easily surpass one million dollars.
- They will likely balance financial priorities throughout their lives. Learning how to manage priorities and save for multiple goals at the same time is a valuable skill. Deciding to be thoughtful about saving, investing and spending money today can help young professionals set a strong financial foundation as their income grows.
- Young professionals have a huge advantage in saving: time. A modest amount saved over several decades has the potential to grow into a significant sum due to the power of compound interest. Consider sharing the following example:
Imagine if you saved $100 per month beginning at age 25, which is the equivalent of a little more than $3 per day. If the money was invested, earning an average annual return of seven percent, the savings would amount to nearly $367,000 by age 70. Now, suppose you waited until age 35 to start your retirement fund. If you invested $200 a month, still earning seven percent per year, your savings would grow to about $355,000. That’s still impressive, but it required you to save twice as much per month than if you began ten years earlier.
- They control their own destiny, but they can learn from your successes and mistakes with money. As adults, your children are ultimately responsible for saving for their retirement. But, chances are, they could stand to benefit from the wisdom you’ve gained from decades of saving and investing. Opening up about your experiences – both smart money moves and missteps you’ve made over the years – may help them capture opportunities and avoid mistakes as they work to build their nest eggs.
Educating your adult children on the importance of saving for retirement may be a bit challenging in the short run if they’re not receptive to the message, but it may do them a world of good if they accept your advice. If you or your child would like assistance crafting a retirement saving strategy, reach out to a financial advisor. Together you can find a way to balance the items most important to you.