Retirement Savings Plan Options for Young Investors - Restivo ...

Last updated 1 day 12 hours ago

Many young adults are hesitant to invest money into a retirement savings plan because of the perceived risk associated with it. The younger generation saw firsthand what the unpredictability of the stock market did to their parents' nest egg when the recession hit in 2008. Most retirement savings plans offered to young adults just starting out involve a more aggressive investment approach, meaning riskier retirement funds that start out heavy on stocks and grow more conservative over time. Its assumed that with 40-50 years until the target retirement date, if your funds are effected by any future downturns in the market, there would be plenty of time for them to bounce back. But, some are beginning to argue that this is not the smartest approach after all, because by putting new investors into conservative funds that grow more aggressive?over time, the investor is taking on risk when he or she is better able to handle it. Not only is there greater diversification, but as an investor matures, he or she may become more knowledgeable and involved in investment decisions, and by taking on risks when the pot of money is larger, the returns prove more worthwhile. So in conclusion, if you are interested in contributing to a?retirement savings?plan, but are concerned about the risk involved, its important to realize that funding a plan with fewer stocks early in your career can still successfully grow a nest egg of your own.

Its not just the risk factor that keeps young adults from investing, its the perception that there is more than enough time to save for retirement in the future without beginning that journey now. Most college students have racked up some sort of debt, whether it be with credit cards or student loans, so it seems more logical for graduates to put money toward the debt and wait for a higher paying job and better job security to begin saving. Though paying off debt is?important in maintaining good credit, its also important to build an emergency fund that can be used in the event of unemployment, a major illness or even to cover unexpected costs like car repairs. If you are currently looking for work, keep in mind that a new job typically means increased expenses. For example, you may need to relocate for the position, purchase new clothes and could incur additional costs for daily transportation. If you have been deferring student loan payments, those will become due each month after the start of the new position, though the payments can be further deferred if you are attending graduate school at least part time. You will also need to take into account the effects of payroll taxes and benefit premiums taken out of each paycheck when calculating your net pay. Its important to gain a general understanding of taxes to avoid unpleasant surprises upon filing each year. If you are set to receive a refund, use that to boost your savings and resist the temptation to splurge on material goods. Generally speaking, remain frugal while you can get away with it, because its much more challenging to do so when you have a family to worry about.

Once you have decided you would like to participate in a retirement savings plan, whether it be through your employer or independent of your job, be sure to explore all of your options. This will probably require some research because there are so many alternatives, especially for young adults. If you do contribute to an employer- sponsored plan, be sure to contribute enough to take advantage of employer matching, otherwise you are losing out on free money. With every increase in pay, re-evaluate your contribution amounts, and eventually you may want to consider opening additional accounts, such as a Roth IRA or a brokerage account. Its also important to periodically increase your emergency fund. It has been suggested that an emergency fund should cover at least?six months of pay, so as your pay increases, the amount needed to cover those six months will also.?As you get married and have children, the frequency and financial impact of those unexpected events will increase significantly. The?fact that the younger generation will receive much less help from employers and the government is often ignored, but it should be addressed when planning for retirement because it means the amount of money needed to support oneself in retirement will be much greater than it is for the baby boomers. Though it may be difficult to accurately determine what your financial needs will be in 40 or 50 years, contributing more now will allow for flexibility later in life so that you can live comfortably and afford your children's tuition, instead of having to choose just one. Above all, be honest with yourself and realistic about what kin

d of lifestyle?you want for yourself and?your family now and down the line.

For?assistance in retirement?planning,?contact Restivo Monacelli,?LLP at (401)?273-7600.

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