Retirement planner Nolan Baker, left, discusses financial matters with clients Jackie and Jake Heilmann at Baker's The Retirement Guys office in Maumee.
It used to be that most working Americans could count on a few sources of income for financial security during their golden years: personal savings, a pension and Social Security.
For millennials (people born as early as 1977 and as late as 2001), also known as Generation Y, the road to retirement has been paved with vanishing pensions, a shrinking social security trust and road signs that lead to one destination, experts say — funding your own retirement.
More than 58 million Americans are already receiving social security benefits, with another almost 10,000 baby boomers reaching retirement age are qualifying for benefits each day. The government estimates the fund will be depleted by 2033, however it will likely still exist in some form or another, but most likely with drastically reduced benefits for Gen Y.
"I tell my younger clients 'Let's plan as if social security won't even be there. We can't depend on it’," said Bill Harris, a registered financial consultant with Informative Financial Services in Toledo. "There is no account with your name on it that says 'this is your money.' If it is there, then that's a bonus."
Saving for retirement isn't often the first goal for millennials, many of who are still in entry level careers and carrying the weight of student loan debt. Factor in the slow economy, a few major purchases (i.e. a house and car) and maybe starting a family, and retirement planning is pushed back even further.
"We have been the generation of 'I want it and I want it now'," said Nolan Baker, an investment adviser representative and co-founder of the Retirement Guys in Maumee. "You have to delay that instant gratification so that you'll benefit more in the long run. The quicker you can get out of debt, the sooner you can become financially independent."
Renee and Archie Caldwell of Toledo, follow a strict budget to ensure that they can enjoy life now and during retirement. The Toledo couple buys only things that are within budget, eliminating wasteful spending and getting closer to their goal of living debt free. Their motto is "if you don't have money, don't spend it."
"I want to know that I own all of my money. It doesn't belong to other people or creditors," said Mrs. Caldwell, 35. "It's personal freedom."
The couple has invested in retirement plans offer by their employers and plan to add more investments in the future.
"We'll be able to do that, because we're planning for it now," Mrs. Caldwell said.
Retirement planner Nolan Baker discusses financial matters with clients Jake and Jackie Heilmann at Baker's The Retirement Guys office in Maumee.
The key to getting started is to just do it, experts say. Requirements vary by plan, but there is something for every body.
"There are companies that will allow you to start with a $25 or $50 and contribute that same amount each month," Mr. Harris said. "This gets you in the habit of saving, and as you grow in your career, you'll already be accustomed to putting money away."
Experts also advise people to take advantage of employer offered plans, including 401k and 403(b) plans, especially if the company offers matching.
"If your employer offers matching, you should be at least contributing up to the maximum match. There's no better investment than free money," Mr. Baker said. "And it's easier to save if the money never makes it to your checking account. You can't spend it on bills or anything else."
For some millennials, retirement may seem light years ahead, but experts in the financial industry say the sooner you start saving, the better off you'll be. Starting at age 30, a worker who saves about $1,800 a year and earns a 10 percent return on the investment, will have $500,000 by age 65. A person who starts saving at age 55 would have to save over $31,000 a year to reach that amount.
"It's pay me now or pay me later, and if you wait until just before you need that money, it's expensive to save," said Ann Hartman, a financial planner with Hartmann & Associates in Toledo. "Pay yourself first."
Here are a few tips to get started:
1. Start gently and build up to a goal. In the meantime, figure out what you need to stop doing, in order to have that money to save.
2. Invest/save bonuses and increase your savings/investment amounts when you receive a pay raise. That money shouldn't become part of your daily income.
3. Build a rainy day fund to protect you from having to withdraw retirement funds in case of emergencies, such as unemployment.
Retirement Savings Plans
401(k) -- A savings plan in which employees can elect to have their employer contribute a portion of his or her wages to the plan on a pretax basis. Generally, the funds are not subject to income tax withholding at the time of deferral, but are usually taxed upon withdrawl. The contributions are not reflected on your Form 1040 since they were not included in the taxable wages on your Form W-2. However, they are included as wages subject to withholding for social security and Medicare taxes.
403(b) -- This plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of public schools, employees of certain tax-exempt organizations, and certain ministers. Operates much like a 401(k).
IRAs (Individual Retirement Arrangements) -- an account at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis. Account holders make contributions with money they may be able to deduct on their tax return and any earnings can potentially grow tax-deferred until you withdraw them in retirement.
Roth IRAs -- With a Roth IRA, you make contributions with money you’ve already paid taxes on (after-tax) and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met.
Mutual Funds -- Investment strategies that allow you to pool your money together with other investors to purchase a collection of stocks, bonds, or other securities that might be difficult to recreate on your own. This is often referred to as a portfolio.
Sources: Ann Hartman, Nolan Baker, Bill Harris, Internal Revenue Service and Fidelity.
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