Saving for Retirement

My grandfather has been receiving a pension check from Ford Motor Company for nearly 40 years. What about you? If you’re young and accumulating assets, will you be living on a pension from your employer when you’re 90? It seems unlikely.

Over the last two decades or so, pensions have become less common and individual responsibility for funding retirement has become the norm. Add to this the possibility that Social Security may provide lower benefits to retirees in the future than it does now.

What is a young person to do? Let’s look at two examples.

Tracee is in her mid-twenties and living like many of her friends. She has a roommate to keep expenses low, even though she’d like to have her own place. Her vehicle is several years old. She’d like to replace it with something newer and nicer, but doesn’t want the payment.

When she set up her student loan repayment schedule, Tracee opted for an aggressive repayment plan so that she would get out of debt quickly. Occasionally the credit card balance creeps up on her, but she’s careful to pay it down as soon as possible.

Tracee says, “My first priority is to stay as debt-free as possible. My second is to make choices, like investments and travel over shopping sprees and dining out. Investments and travel are more valuable over the long run.”

Overall, she’s doing well with her finances, but maybe the best step she takes is to have money transferred from her checking account to her savings account monthly. Tracee set this up so that it’s automatic, she doesn’t have to think about it or make a decision each month whether she’s going to save or not. Each month, she sets aside $417 to allow her to build enough of a cash balance to fully fund her Roth.

Notice that she’s not waiting for “someday” to start funding her retirement. She’s doing it right now.

Mark is in his mid-twenties and building a career with a financial services company. His current employer does not offer a 401(k) or any other retirement plan. What then does Mark do to save for retirement?  He has fully funded his Roth since midway through college, when he was 20. Mark started his Roth early in life because he wanted to take advantage of a provision that allows the investor to access funds to purchase a house if the Roth has been opened for at least five years.

Mark used his part-time and summer work during college to begin funding his Roth. In addition to the Roth, Mark contributes to a taxable brokerage account wherein he buys various investments. Mark is able to fully fund his Roth IRA on January 1 of each year.

Mark says. “Just allocate as much as you can as quick as you can. Get it into your Roth, no reason to wait.”

Mark’s advice to his friends? “If you have a 401(k), use it! Get a Roth IRA if you don’t already have a Roth. Fully fund your Roth IRA first, then your 401(k). If there’s money left over, buy investments in a taxable account.”

Tracee doesn’t have the cash flow to do everything Mark is doing financially at the moment, but she is building lifelong habits that may allow her a comfortable retirement.

Both are good examples of what all twenty-somethings can be doing right now, whether they’re flush with cash or just getting by.

What should you take away from a brief glimpse into the financial lives of Mark and Tracee?

Start by paying yourself first. Tracee pays herself first by having funds automatically transferred from her checking to her savings. Mark pays himself first by funding his Roth at the beginning of each year.

After you’ve decided to make it a habit to pay yourself first, take advantage of any tax-advantaged accounts available to you, whether IRAs or retirement plans. Note that limitations and restrictions apply to IRAs and other retirement plans.

Finally, stick with it. Don’t fall victim to what the philosopher described when he said, “The chief cause of failure and unhappiness is trading what you want most for what you want at the moment.” If what you want most financially is to be independent, get started today.

Kevin Bourke is a registered principal with and offers securities through LPL Financial Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.