by Jaynee Sasso
Last Thursday, the Virginia Retirement System told the Senate Finance Committee that recently, VRS holdings lost 20 percent of earlier value. VRS leaders assure Virginians that pensions for about 140,000 retired state and government employees are secure, thanks to long-term yields. We asked a financial planner to share her retirement strategies for people in their 30’s and younger. – UVW
As a result of high housing and energy costs, escalating college and consumer debt, and often stagnant wages, people between the ages of 21 – 43, often known as “Generation X” and “Generation Y,” are not only finding it hard to make ends meet, but encountering challenges toward saving for retirement. According to the Employee Benefit Research Institute, more than one in three workers ages 35 – 44 aren’t setting aside any money for retirement, and among ages 25 to 34, 45 percent are not saving. However, because of a failing Social Security system and the end of traditional pension plans, much of the financial responsibility to fund one’s retirement years is shifting back to the individual. Therefore, it is more important today than in years past to invest early in our future.
First, we must develop the discipline to set aside a portion of our income for savings or investment. This requires that we develop a financial plan beyond just paying our everyday bills, but that positions us to experience a lifetime of financial success. We are often taught that a successful financial plan begins with choosing the right financial advisor or a winning stock. But a successful plan begins the moment you decide to change your perception about what seems to be an impossible task. We have enough information fed to us daily that gives us a growing number of excuses for why we can not achieve our financial goals. But I once read a quote: “Excuses are like nails in a coffin.” The key is to focus on the solution instead of the problem, and take their first step toward enjoying a successful retirement.
The first step in planning for your retirement is to be realistic about the lifestyle you can expect to lead today and in the future. According to a Charles Schwab nationwide study of more than 2,000 Gen-Xers, 45 percent of respondents said they had too much debt to be able to save. The concept of the “American Dream” is changing, and we must accept that the lifestyles our parents had at our age will not be the same for us. We cannot continue to go into debt because we are trying to hold onto the past. Financial success is a process, and should not be centered on any one event in our lives like homeownership, earning a six figure salary, etc. It should be based on how well we can navigate through the journey. This begins by taking our focus off of just paying our everyday bills, and instead, making decisions that allow us to be better off than we were just the day before. That may require, for example, delaying a large purchase that would prevent us from saving. Our present economic condition is a sign that a change in the way we behave when it comes to our money is crucial. I want to encourage you to take the necessary steps so that your golden years will be filled with peace and joy, and not regret.
Five Things to Do Now Toward Retirement
- Increase your financial literacy and develop your financial education so that you may avoid costly mistakes.
- Start contributing to your employer’s 401K plan. Time and compound interest are your greatest assets in the world of investing.
- Determine your retirement lifestyle based on a realistic idea about your anticipated income and expenses.
- Determine the best investment vehicles to help you fund your vision for a successful retirement; for example, stocks, mutual funds, real estate, commodities, etc. If investing in the stock market is the vehicle of choice some advisors suggest that having a higher percentage of income invested in stocks and a smaller portion invested in bonds. One rule of thumb is: 100 minus your age = Percentage to invest in stocks. For example, if you are 30 years old, aim to have 70 percent of your assets allocated to stocks, and 30 percent to bonds. However, if investing in real estate suits your fancy you want to build a portfolio of properties that provides a positive cash flow over the life of your investment and not just focus on selling it for a profit as you get closer to retirement.
- Seek the advice of a financial professional that can assist you in developing a financial road map and commit to the plan.