It’s a well-known fact that the average human lifespan is longer today than it has been in past generations. I’ve written about it in past blog posts, but there are various reasons for that, ranging from advancements in medicine to a better understanding of our diets and health. The increase in average lifespans is not only having an impact on the world population, but is also having an impact on financial and retirement planning. Of the many things you need to think about when planning for retirement or your financial future, you probably haven’t considered the impact that longer lives could have on your savings and finances. For example, if you retire at the traditional retirement age of 65, there’s a good chance that you may live another 20-25 years in retirement. That’s a long time and will take some serious planning, especially if you don’t plan on having any earned income during that period. As many today are doing, often for reasons not involving longer lifespans, you may even consider working past 65 and well into your 70s. While the impact on your nest egg is what most often gets mentioned in discussions about living longer, there are other ways you could be affected by people living to be an average older age than previous generations. One area is how you will fund your nest egg. It’s not uncommon for Americans to rely on an inheritance to help bolster their nest eggs. However, with parents (or grandparents) living longer and potentially dipping into their own nest eggs for longer periods of time, those inheritances may turn out to be smaller than expected, or even non-existent. Thus, it’s it’s becoming more likely that late Generation-Xers, Millennials, and future generations probably won’t plan for big inheritances like past generations did. However, these current and future generations also might plan on working longer and waiting until much later in life to tap into retirement funds. This view is already being reflected in legislation involving retirement account today. An good example is the SECURE legislation that Congress is currently working on (it’s a rare piece of bipartisan-supported legislation) which will allow people who are currently working to push back taking required minimum distributions (RMDs) and allow for small businesses to work together to offer retirement benefits to their employees. The fact that there is legislation allowing people to push back RMDs is a sign that even Congress is recognizing that changes in lifespans are affecting retirement–and you should too! So, the next time you look at your retirement accounts, think about how a longer lifespan might affecting things, both from a saving and a consumption standpoint.
There’s a good chance that many readers of this blog have children who fall into the millennial generation. Millennials are those people born between the early 1980s and the early 2000s. They’re a unique generation that has taken a lot of flack over the past decade as the earliest members have begun to come-of-age and leave a mark upon society and culture. This generation has also faced unique hurdles that future generations did not. The most prominent hurdle has been the rising student debt and the cost of getting a proper education. The student debt that many Millennials face–combined with the economic uncertainty of the past 10 years has forced many of the Millennial generation to make a decision regarding whether to focus on paying down debt or whether to make saving for retirement the top priority. While many successfully balance both priorities, one priority usually takes a slight precedent (i.e. putting more towards paying down student debt and only saving the bare minimum for retirement or vice versa). So what can be done about that? Well, first off, talk with your children (or grandchildren) about the importance of saving for retirement. Remind them that retirement saving is a long road, but that it’s worth it. You will also want to talk with them about budgeting and how they can balance paying down student debt while also saving for retirement. These conversations should be honest and won’t be easy, but you also need to be understanding as to what those of this generation are facing when it comes to finances. Discuss the tools they may need to get on track with their retirement savings, which may even involve talking with a certified financial planner. Those in the Millennial generation still have enough time before retirement to catch-up, so encourage them to do so and encourage them to keep saving!
Despite the title, this post is not encouraging you to skip saving for retirement. I would never advocate that. However, for some people, particularly those of younger generations, it can difficult to save for retirement when it is so far off or you are unsure as to how they want to spend it. In such instances, it might be wise to take a different approach to saving. Instead of looking at it as “saving for retirement,” view it as “saving for the future.” When you think about it, saving for retirement can seem very rigid–and in some ways it is–while saving for the future offers much more flexibility and options. It is a vague enough term that can mean different things to different people and is something that can be reached seemingly at any time. That’s not to say that you shouldn’t just save anyway, but rather you should save with a few goals in mind, but also the ability to change those goals as life goes on. If you are far away from retirement (i.e. in your 20s and 30s), taking a more vague approach to saving for “the future” can make it seem less like a chore and much more interesting. Again, this doesn’t mean that you shouldn’t have a plan for the future or talk with investing and financial planning professionals about your goals. Rather, when you have those conversations and make those plans, you can do so with flexibility in mind as well as a focus on saving in general as opposed to saving for retirement. Even a simple change in terminology (i.e. “the future” vs. “retirement”) can have a huge impact on energizing and getting people to save for the future. Regardless of what term or approach you take, the key is that you save and that you do so consistently throughout your time working. So, are you saving for retirement or for the future?
In the past, I’ve talked about reasons why you may want to have multiple retirement accounts and how you may end up having multiple places from which you draw your money in retirement. While I’ve mostly focused on IRAs and 401(k)–as well as other employer retirement accounts–I haven’t really talked about another important retirement account you will want to have, a Health Spending Account (HSA). You’re probably familiar with what an HSA is through your employer benefits as it is commonly offered by many employers as a part of health insurance benefits these days. HSAs allow you to save for future medical expenses as well as reduce your taxable income. If you are on the younger side, one of the biggest draws to an HSA is the tax advantages they offer; HSA contributions are tax-deductible, the money in the account grows tax free, and the money can come out tax free. Given that there are questions as to how long Social Security as well as how Medicare/Medicaid may look in the future, it’s important that you take steps to save for medical costs in the future, especially if you fall within the Generation X or Millennial age brackets. HSAs can be an efficient and effective way to do so. Furthermore, if you start and HSA, you should include it as part of your financial planning for retirement, along with any IRAs or 401(k)s you may have. If you don’t have an HSA, you may want to look into starting one during the next enrollment period for your health insurance benefits (that is if your company offers it). As for how it fits in with your retirement planning, you should speak with a certified financial planning expert if you have any specific questions.
This blog usually focuses on you–the reader–and your retirement plans and savings. However, today we are focusing on a different age group: Millennials. Chances are, your children or grandchildren are millennials. It’s an age group that encompasses those in their early twenties through late thirties (born between 1981 and 1996 to be a bit more exact). Studies show that millennials are most often behind the curve when it comes to saving for retirement. For many millennials, student loans and low entry-level job wages have played an outsized role in deciding to save for retirement early. However, that shouldn’t stop you from talking to your millennial about the importance of saving for retirement and at least formulating a plan to do so. For many millennials, saving for retirement can seem daunting in light of student loan payments, rent payments, saving for a home, etc., but that doesn’t mean it should be ignored and, on top of that, it’s not hard to get started. If your millennial has a job and a paycheck, they can start a IRA and a majority of employers offer some sort of retirement benefits package (heck, they may not even realize they are contributing to a 401(k) already). Furthermore, if you are using a financial planner to help plan for your retirement, you can also speak with them about ways to get your millennial saving early and often. For many millennials, it’s not that they don’t want to save for retirement, it’s that it’s so far off that they don’t see the benefit. That’s part of the conversation too. Remind them that over time those little beginning investments add up and can lay the foundation for a substantial nest egg 30-40 years down the road. Don’t be afraid to encourage your millennial to save and help them out if they need advice. A nudge here or there can have a huge impact on their future.