FOR IMMEDIATE RELEASE
Washington, DC, September 16, 2014 — For most people in their 20s and 30s, saving for retirement is not an immediate priority, knows Michael Egan, a founding partner at the Northern Virginia financial services firm Egan, Berger & Weiner LLC.
“They would rather buy a new house or car, start a college fund for their children, or plan a nice vacation,” he says. In comparison, retirement is way off in the distance. But, “like it or not, retirement saving should be their number-one goal.”
Here’s why: “Most young people today will not have a pension,” Egan explains. “They will likely have reduced Social Security benefits. That means they are the only ones saving for their retirement.”
Case in point: “As the father of two daughters now in their 20s, I have firsthand experience with this issue. When I advised my recent college graduate to put 20 percent of her gross income from her new job into her 401(k), her friends all told her that her dad was crazy. But it’s smart to plan for your future. And the best time to start is when you’re young.”
Three Savings Priorities: A Checklist for Millennials
Savings Priority #1: Saving for Retirement. Early savings discipline can pay huge dividends later. By saving well early on in your career, you will have much more flexibility in your 40s and 50s if you want to switch career paths, or if you are laid off or disabled for a period of time.
- Here’s why: Many 401(k) plans currently have automatic increase options built into them. If your goal is to contribute 15 percent, but that seems too much when you’re getting started, take advantage of this option. It will automatically increase the amount you are putting into your 401(k) by 1 percent per year until you hit a maximum of 15 percent or the IRS dollar limit, whichever is less.
- Case in point: Egan told his daughter that a good compromise position would be for her to contribute 15 percent to her 401(k), with a 1 percent annual increase until she hits 20 percent. He recommends that all other savings goals, with the exception of paying off high credit card debt, should be delayed until you are on track for retirement. The average 20-something will need between $5 million and $8 million to have a comfortable lifestyle in retirement, he says.
Savings Priority #2: Buying a House. Anyone who wants to purchase a house should already have a cash reserve of three to six months of expenses saved for emergencies.
- Here’s why: What really makes a retirement plan work is having no mortgage when you’re no longer working. The sooner you build up home equity, the closer you are to that goal. Mortgage interest rates are currently at record lows, but they won’t be there forever.
- Case in point: “I’m not suggesting you go out of your way to pay off your house sooner, but if you are in a position to have no mortgage in retirement, you won’t need as much in retirement savings,” says Egan.
Savings Priority #3: Saving for Your Children’s College Education. Too many people make the mistake of making this the number-two priority, behind the purchase of a home. You should only be saving for college once you are on track for retirement.
- Here’s why: In Egan’s opinion, the best gift you can give your children, outside of a good safe home in which to grow up, is ensuring that you and your spouse are financially secure in your retirement. “If you are not, you are likely to be on your children’s payroll for many years,” says Egan.
- Case in point: “Many of my older clients have been forced to balance the financial needs of elderly parents at the same time as they were sending their children to college,” he shares. “I am not suggesting that your children not go to college, just that you don’t have to pay for it.”
Questions? Send an email to Michael Egan.
About Egan, Berger & Weiner LLC
Egan, Berger & Weiner LLC, is an independent financial services firm based in Northern Virginia. Its associates have decades of experience in helping clients plan ahead for retirement. For more information, visit EBW’s Financial News for insights on making financial decisions.
To learn more about EBW’s financial planning services, visit www.ebwllc.com or call EBW at 703-506-0030.
Securities and Investment Advisory Services offered through Voya Financial Advisors, member SIPC. Egan, Berger & Weiner LLC is not a subsidiary of nor controlled by Voya Financial Advisors.