When it comes to retirement advice, you probably don’t think about sharing it with your kids because that’s something they don’t have to worry about for a very long time. But in reality, it’s a great way to introduce to them topics about retirement planning and saving. Experts agree that talking about money and retirement will help your children's long-term success.
According to a 2012 study by the LIMRA, a financial services trade association, 56% of all 18-to-34-year-olds are not saving for retirement, and one in two Americans are not saving for retirement at all. So it’s safe to assume that talking to your children early on about the importance of retirement savings can only help them with their future plans. After all, if we have good retirement tips, shouldn’t it be our responsibility to pass them along to the younger generation and help them better prepare for their financial goals? Check out the retirement savings tips below to pass along to your kids.
Start Saving Early
You’ll probably hear this most often because it’s true. It’s never too early to start saving for retirement or teaching your kids about managing a personal budget. It’s important not to delay the discussion about savings plan strategies because planning for a debt-free retirement is a long process that takes patience and practice. Simply showing them how to develop the habit of saving a small amount every paycheck is crucial to preparing for a stable financial future. Once your child gets their first job and paycheck, take the time to explain to them what the Social Security taxes withheld are and the role those withholdings play when it comes to retirement.
Set a Goal
Teach them to set a realistic financial goal and try to stick to it as much as possible. It can be a small goal like purchasing a new bike, their first car, or down payment for a home. No matter how old your child is, saving for a small purchase shows them how to establish and maintain financial goals without breaking them on unnecessary splurges. Once they get older, they will be accustomed to these habits and, hopefully, have an easier time sticking to saving for their retirement nest egg.
Automate Your Savings
The time old saying “pay yourself first” rings true in this helpful tip. If you teach them how to save money for retirement, how can you guarantee they will put away a certain amount each paycheck? That’s where automatic savings come into play. Tell your kids to set up a weekly, monthly, or even quarterly automatic withholding from their checking account and directly deposit it into a savings account or Individual Retirement Account (IRA). Once they get into the habit of saving money without ever seeing it or spending it, they can increase their automatic retirement contributions each month to further grow their nest egg.
Limit Amount of Debt
Although it may sound daunting, paying off debt, or at least keeping it to a minimum, should be one of the most important tips that your children learn from you. The less debt they have in their life early on, like unnecessary credit card debt, the better prepared they will be to save money towards their retirement goals. Teach them to hold off on splurging every paycheck every weekend and instead start thinking about long-term goals. Helping them limit their debt can be as simple as showing them it’s more cost effective to bring their lunch to work instead of buying one daily. Useful budget worksheets and cash flow calculators can help your children better understand budgeting, debt, and help reduce spending so they can have extra cash to save.
Contribute to Your 401(k)
You should stress the importance of participating in an employer’s 401(k) program. Young adults should be investing and saving for their retirement, but that’s usually not the case. Take this time to explain to them what a 401(k) is and how it works. Once they know they can contribute pre-tax money, and even better when their employer matches their contribution, they will be off to a good start for their retirement savings.
Open an IRA
IRAs help build retirement savings plans. Make sure you pass this info on to your children, which can help strengthen their nest egg. Contributing to an IRA also reduces their income tax bill, depending on the bracket they fall into. Whether they choose a traditional or Roth IRA, it's crucial that they diversify their savings.
Delay Social Security
Tell your children that they should delay Social Security as they get near the early retirement age of 62. If they can keep working until they are 65 or 70 years old, they will increase their Social Security benefits.
Don’t Withdraw Early
Once they start seeing how much money they have stashed in their 401(k) or IRA, it might be tempting to withdraw that money early to buy something lavish. But make sure you warn your children that it’s not a good idea. Distributions from traditional 401(k)s and IRAs before the age 59 ½ will get a 10% early withdrawal penalty fee. It’s also important to let the younger generation know that if they take out the money early, they will miss out on the tax-deferred investment growth they’ve accrued during that time. So just tell them not to touch their nest egg and to keep a separate emergency savings fund for other things that won't get tax penalties.