You’ve heard it said that it’s never too early to start saving for retirement, but what about your young adult kids who haven’t even finished college yet or are only just entering the workforce? The fact is that saying extends to them too.
Generation Y
Today’s twenty-somethings may not be as concerned about retirement planning as they should be, but more and more young people are becoming aware of the need to start saving as soon as possible. This new type of awareness with young adults has generally come from them seeing their aging parents not prepared for their own retirement, which has been a huge wake-up call.
What’s more, today’s Generation Y cannot expect any Social Security or employer-sponsored pensions like their parents and grandparents have enjoyed. This means that any retirement savings falls into their hands, which is a heavy burden for any young adult to bear.
In a generation where the majority of young adults hold college degrees and unemployment rates have been high, competition for entry-level jobs after college has become stiff. Not everyone is able to get on a career track that offers benefits like a 401k retirement plan or stock investment options and countless young adults end up putting off retirement savings until that elusive career comes along.
Looking Beyond 401k Plans
The fact is, even if their employer offers a 401k retirement option, it’s not a bad idea to encourage your adult children to seek out alternative retirement savings. Individual retirement accounts are available through local banks and credit unions, so they are great options for those that don’t have a company-sponsored retirement plan.
An IRA savings account comes with certain tax advantages that vary by account type. The two most popular IRA options are the Roth IRA and the Traditional IRA. With the Roth IRA option, any money put toward the retirement account is done so with after-tax funds. Contributions to the Traditional IRA are tax-deductible.
Other retirement savings options include the SEP IRA, the SIMPLE IRA and the Self-Directed IRA. The sooner a retirement account is opened and funds are contributed to it, the longer your child’s money has to grow, resulting in a more comfortable retirement.
Encourage your twenty-something child to consider retirement options now, even if that big entry-level job hasn’t come along yet. Although student loans and rent payments are often at the forefront of the minds of Generation Y, these extra years of saving could mean a huge difference in that IRA balance years from now and these are years they simply cannot get back.
At the very least, twenty-somethings should build up some sort of emergency savings fund and focus on getting debt free as quickly as possible.
(This has been a guest post!)
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Written by Jon the Saver
