Helping Younger Generations Plan for Retirement

Many of our children and grandchildren are facing challenges today that put their future in jeopardy. They face many more difficulties at ages 20 and 30 than older generations starting out. Young people are presented with unique job related situations that we did not encounter.   If we worked hard, obtained a good education, and pursued our dream career,  we could control our own destinies.  In contrast today, young people are coming out of school with huge debts.   The norm is for a young person to graduate from college with debt that could buy a first home; if they go to grad-school, then they often face double the debt that could buy a mansion.   Instead of beginning with nothing and being able to save for a home and retirement, this new generation has trouble just paying off their loans.   As we all know, when their children arrive, their ability to save for themselves is put behind the financial needs for their children.  For these reasons, we should be concerned for our children and grandchildren’s futures, especially their “retirement” years.

Of those young adults to age 30, three out of every ten are still living at home with his or her parents.  This shows the financial plight of young adults and illustrates how difficult it is for young people to get a job and remain self-sufficient today. When the economy tanked, there were many people let go who were overconfident in their job security.  Since then, we have had three to four years of graduates who have been unable to find jobs. The few jobs that have been available to recent graduates have been very competitive and very low paying.  These are the years when young adults would normally be saving to buy a home, which they are unable to do, as they are attempting to simply make ends meet on low paying salaries. Instead of starting from scratch, they are starting from a large negative number.  When you think about that negative number being the cost of a mortgage, you really gain perspective of the difficulties that our children and grandchildren are facing.  Could you afford two homes when you first started out as an adult?

Projecting where this generation will be at ages 60-70, it is not hard to see that young people today are in serious financial trouble. This generation may never be able to afford to retire.  We know that social security will not be a safety net for this generation.   There are no pensions left today unless you retire from the state or federal government, or the military.  Instead, the business world currently runs on defined contribution plans, but these have nothing to do with your needs in the future.  To save sufficiently for retirement, young adults need to secure a good paying job from day one, and they should be saving 10-20% of every paycheck for retirement.   We are asking for the impossible.  Most young people today are in low paying jobs that are only sufficient to survive.  Most can’t even pay their debts and very few can actually create a savings account.  The sad solution is that this generation must learn to live with less.

This is the first generation that has had to face this predicament; every generation in the past has lived a higher standard of living than the generation before.   We have a better lifestyle, a larger home, and more luxuries than our parents enjoyed.  This better lifestyle for children is every parent’s goal.  Unfortunately, the only retirement math that works for most young adults is to live a much lower standard of living than their parents.

Most young people know what actions to take; they just cannot afford to take the appropriate steps.  If a young person is fortunate to secure a good job, listed is some “no-brainer” advice:   if the employer has a 401k plan with a match, contribute the maximum of the match.  Then keep an eye on your 401k investment; most people don’t keep up this very important fund.   Second, take advantage of all of the benefits of the company, such as life insurance and long term care insurance; your premiums will be very low if purchased at a young age.  In addition, young people should save to buy a home; a home that is paid for at retirement is a huge blessing in retirement years.  Buy term insurance to cover the cost of the mortgage.   In addition, it is helpful to buy whole life insurance to go with a term policy. This will be helpful long term, as it forces you to save and a whole life policy is really an investment that will become a great asset in the future. Obviously, one could write a book on the challenges faced by our children and grandchildren.

A lot of parents and grandparents ask us as planners what they can do to help.  Many ask about establishing accounts for their education.   We are of the opinion that the bigger problem for this generation is not education, but retirement.   If you really want to make a difference for your grandchildren, there are several things that you can do:  If they are working, make an annual gift to each child of $5,500 or more so they can contribute that amount to a Roth IRA, because early in a career their tax rate is low, but they can’t afford to contribute to a Roth account because of all the other priorities.  The more money invested early creates a much larger account later on.   A Roth IRA established early in a career is the most powerful tax sheltered investment possible, as it can grow to an unlimited extent, and the money comes out with no income taxes in retirement.

If your child or grandchild is an infant or very young, another tax sheltered investment play is to purchase a whole life insurance product that is structured specifically to grow cash value over time.   If structured properly, this kind of policy will provide wealth for the child from which he or she can borrow against tax free for retirement and still have a death benefit for the next generation.

One service that our law firm provides is that we can review your life insurance policy for you. Oftentimes, if you’ve owned a life insurance policy for a long time and have some cash value in your policy, we may recommend that you can exchange your policy for a better one.   We can also review your policy to see whether it has problems and/or whether it fits your current needs and goals.   Finally, we recommend that everyone look into long-term care insurance, (either traditional, modified, or asset based long term care policies).   It is important to shift the real risk of long term care costs if you are in good health and can afford the policy premiums.  You can also purchase long-term care insurance for your children to secure their retirement years.

If you are interested in helping your children or grandchildren save for their retirement where they may be unable to do so for themselves, be sure to contact an experienced Elder Law attorney today. Call W.G. Alexander & Associates for more information!