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If you have a child in their 20s, chances are they’re not really thinking about retirement. That’s why Suze Orman suggests that it’s time to give them a gentle nudge to start retirement planning ASAP.
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“This is exactly the age when they can give themselves a huge leg up on retirement,” she wrote in a recent blog post. “They just might need you to help them realize that.”
Even if you and your kids think it’s too early to start planning for retirement, that’s simply not the case.
“Even though you and I both know it is ridiculous to think that just when someone is launching into adulthood they should focus on retirement, … that’s what our retirement system requires,” Orman wrote. “Making one smart choice in their 20s will set them up for success. Waiting until their 30s (or 40s) to focus means a harder slog.”
Here’s the “one smart choice” Orman is referring to.
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Orman said that the one strategy every 20-something must follow is to set aside 15% of their income for retirement.
“All they need to do is nail one key number: 15%,” she wrote on her blog. “Their goal in their 20s should be to save 15% of their income in a retirement account.”
Orman said that ideally, this will be a Roth account.
“That can be through a workplace retirement plan, or their own Individual Retirement Account (IRA). In both instances, encourage them to use a Roth, not a traditional account,” she wrote. “Most 401(k) [plans] now offer a Roth option, and I am confident that someone in their early 20s meets the income limits for contributing to a Roth IRA.”
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Although 15% might seem ambitious for someone just starting out in their career, their future self will be thankful.
“The 15% savings rate is based on a lot of smart people doing a lot of mind-numbing number-crunching that factors in how investments grow over time, how much of our work-years income we need to live comfortably in retirement, and how much other income sources, such as Social Security will provide,” Orman wrote.
And it’s imperative they start now.
“Someone who starts saving 15% of their income by age 25 and keeps at it will be in good shape decades from now,” Orman wrote. “Wait[ing] until 35 or 45 to get focused on retirement saving means having to save a lot more to land in retirement in solid shape. While 15% can seem like a big ask for today, my hope is that you can help young adults in your life see that it is an act of financial self-care that will make their lives easier in the coming decades.”