Addressing Retirement Fears: Q&A with Shannah Game

when you should start saving for retirement

Following up from our first article where we Addressed Your Financial Fears, there was a theme in a lot of your questions about retirement. You’re worried about retirement, and rightfully so. If you are under the age of 40, chances are your life expectancy could be well into your 90s if not 100s, which means you could spend 30+ years in retirement. You need to make sure that your money doesn’t expire before you do, which is a tough task in today’s economy.

We’ve got hurdles to overcome like inflation (which is a fancy word for how quickly prices are increasing), the cost of healthcare, high unemployment rates and a general desire to be more conservative versus aggressive with investing. This means that you’ve got to be on your toes when it comes to saving for retirement and the earlier you start, the better off you will be in the long run.

Don’t be upset if your 401(k) balance doesn’t have a ton of zeros after it. You guys had some thoughtful questions about retirement that will help set you all on the right path for retirement saving.

Q: Are employer 401(k)’s too risky now?

A: Any 401(k) is risky, depending on how risky you want to be. The risk in a 401(k) has to do with the investments and mutual funds you are invested in and not an individual employer per se.

For example, if the stock market tumbles you can potentially lose money in your 401(k) depending on how it is invested. There is a tradeoff though. One of the reasons why you invest in a 401(k) is for the potential upside (when your account grows in value because of positive gains). As with any great relationship, you also have to be prepared for the potential for rocky periods of time when your account might decrease with investment losses. The object, of course, is to have more good days than bad days, and historically, the longer the time horizon on your side, the better.

What I see a lot of 20 and 30-year olds do is get scared when the market has a bad day and move all their money into a conservative investment. Of course we all have our own amount of investment risk we are willing to take on, but generally, staying the course in your 401(k) is accepted as a good rule of thumb.

When you sign up for your 401(k), your employer will give you information about all the possible funds you choose from ranging from risky to conservative. It’s your choice which investments you wish to invest your money in. My advice is to do your research, don’t just select what your friend has chosen. You can look up any fund online and get a good sense of the companies in that fund, how well it’s performed over the last few years and what level of risk you would be assuming if you selected that fund.

Here are a couple of other things to keep in mind:

  1. If your company offers a match on contributions, that is essentially FREE money they are offering you, you want to make sure you take advantage by contributing at least up to the match amount.
  2. If your plan offers it, you might want to consider a lifestyle fund that matches your expected retirement date, and, therefore, is invested based on your age and retirement date.
  3. A great resource for professional advisory assistance with your 401(k) is a company called Blooom, where for a small fee they can take a look at your 401(k) and help you maximize its potential.

Q: At what point have you waited too long in saving for retirement? Think: young people living in major cities barely save.

A: It’s always a good time to start saving for retirement, but the earlier you can start saving the better. The truth is that you are going to need a lot of money to live in retirement unless you plan on working forever (which is never a fun goal).

The follow up question is always, “Why am I going to need a lot of money if I’m retired?” Well, there are a couple of things working against you. First, the cost of healthcare is escalating and showing no signs of slowing down. Second, we are all living much longer (if you’re in your 20’s and early 30’s, the chances of you living to 95+ are pretty great). Third, you may want to travel and do all those things that you couldn’t do during your working years.

Most people avoid saving for retirement because they don’t understand all the lingo – IRA, 401(k), mutual funds, what is a stock market, etc. Don’t let the lingo bog you down. There are plenty of resources online to help you out.

Honestly, though, I can’t urge you enough to start investing today with baby steps. Open an IRA or ROTH account, or if you can contribute to a 401(k), start there. These are more options for your financial future than just saving the money in a savings account. They aren’t considered the best option for long-term saving since typically, the rate of return is lower. Two good places to turn to start investing are Vanguard and Fidelity for an easy setup of your retirement fund.

Even if you can just save $25 or $50 a month, over time, that money will compound, and you would be surprised at how fast your retirement fund can grow. Remember, something is always better than nothing.

As far as how much to save for retirement, the number depends on a lot of factors.

Where do you want to live?
How much income do you need each year?
How long do you plan to live in retirement?

The answers to these questions are different for everyone.

Generally, aiming to save at least five to 20 percent of your income in a retirement fund each month is a good idea. Again, if your company matches 401(k) contributions, take advantage of that…it’s FREE money you can put to work in your retirement fund. For example, if you started with $5,000 in your retirement fund, saved $1,000 a month in that retirement fund for 30 years earning an assumed 6% interest rate, you would have over $1,034,000. (Check out this compound interest calculator to see what could happen with different contribution amounts, or plug in your numbers and see how much your account might grow.)

Q: Should I be focused on paying off student debt or saving for retirement? I don’t know what to do so, unfortunately, I haven’t been doing much of either.

A: It’s a balancing act. If you pay off all your debt but have no savings for retirement, you could find yourself in a pinch later on. I suggest that you think of it like a teeter-totter. You don’t want one end higher than the other.

When you have your budget in place, figure out a comfortable amount that you can save for retirement with a 401(k), IRA or ROTH while still making your student loan payments. One approach would be to aim for saving at least five percent of your income for retirement while you are paying off debt and try adding $50-$100 a month to your current student loan payments to reduce the amount of time you will have paying them off.

Lastly, it’s really important to know that there are lots of student loan options once you begin to pay them off. Some are based on your income, if you consolidate your loans you can lower the payments by lengthening the term (although in this method you end up paying more in interest), or you can select a straight 10-year standard repayment method. The Federal Student Aid has a great website where you can find out about all the different types of loan repayment methods. Just make sure you’re picking a method that allows for you to at least save some money while making progress on paying off the loans.

Thank you again to everyone who submitted a question to me or the Haven Life team. It’s hard to admit our money fears, but it’s important to make sure that you’re finding workable solutions to them.

Overcoming financial concerns is a lot like walking on a balance beam. You need to take one small step forward, gain some balance and success, and then take another step forward. Once you get your footing, you’ll have the confidence to tackle even your toughest money fears.

If you haven’t already, don’t forget to read the first part of our financial fears Q&A.

Shannah is a CERTIFIED FINANCIAL PLANNER™ professional and is a millennial money financial strategist. She runs the blog Your Millennial Money, and is host of the Millennial Money iTunes podcast. Her husband Jeff is a travel journalist, but when they aren’t traveling she loves to challenge herself in the kitchen by creating a culinary masterpiece worthy of Food Network fame (she can make a mean risotto).

Real Rate is based on your application and third party data obtained during underwriting.

Haven Term is a Term Life Insurance Policy (DTC 042017 [OK1] and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. Policy and rider form numbers and features may vary by state and may not be available in all states. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Our Agency license number in California is OK71922 and in Arkansas, 100139527.

Get the latest news

Apply now