Tuesday, May 20, 2014

Financial Advice for 30-Somethings ... 401(k)s and Your Long Life Ahead Make It Imperative that You Begin NOW to Take Good Care of Your Future Selves

Advice given by oldsters to the younger among us can be particularly practical when it comes to saving and investing for our retirement years.

Of course, due to time's passage, the same advice is not so useful for those who are nearing retirement age.

Time lapsed or remaining is the differentiating factor.

Retirement strategies for 30-year-olds contains solid advice from various oldsters to the young. Let's pay close attention to what they have to say:

"It’s never too early to start planning for retirement. With this in mind, we asked The Experts: What retirement money tip do you wish you’d given yourself when you were 30?                                         

Investment tips nobody told me                                        

William Reichenstein: If you have not already begun saving, begin saving now! Adhere to the adage: Pay yourself first! Moreover, every time you get a salary increase, have some of that increase go toward more savings until you have maxed out your eligible contribution to your 401(k) or other savings vehicle....                                        

Furthermore, I wish someone would have told me to maintain a heavy stock allocation — probably at least 90% until my early 40s ....                                               

Finally, I wish someone would have encouraged me to pay careful attention to mutual-fund expense ratios. If available then, I should have invested in low-cost index funds.                                        

William Reichenstein is the Powers Professor at Baylor University and head of research at .

What I wish I had known about stocks when I was younger

William Bernstein: The riskiness of stocks is dependent on where in an investor’s life cycle they are; they’re the least risky early on, since large price falls are actually beneficial to those with ongoing savings, and the most risky in retirement, when the losses can’t be made up with further saving. I wish I had realized this when I was young.

William Bernstein is a neurologist and co-founder of Efficient Frontier Advisors, an investment management firm. . . .

The one word I’d like to tell my younger self

Maddy Dychtwald: How many of you remember seeing the movie “The Graduate” starring Dustin Hoffman? It not only made him a huge star, playing Benjamin Braddock, a recent college graduate who wasn’t sure what to do with his future, but it introduced a few memorable lines, including, with some paraphrasing: “One word: plastics. The future is in plastics.”

Those might have been wise words back in the day, but not so much anymore. If I were to provide my younger self with the secret to a successful future, it would be “Longevity. Be prepared to live a long life.” And one of the best strategies to living a long life successfully can be summed up in one word: “Compounding.” In order to live a long life, it’s going to take money. A lot of money. The secret weapon to getting there is to take advantage of compounding.                                         

Think about it. We’re the first humans who will live to 80, 90, and even 100. If we knew this in advance, we’d quickly realize that this requires some long-term planning....                                        

Money isn’t everything, but it can oil the wheel so we have more opportunities and choices in how we live our long life. And so, here’s what I would say to my 30-year-old self:
  1. Start early. To leverage the power of compounding, start saving as early as you can, at least 10% of your income.                                  
  2.  Make it automatic. If you don’t have to think about it, you barely notice the money is gone.
  3. Save, save, save. No matter what. . . .                                                                           

Maddy Dychtwald is an author and co-founder of Age Wave , a think tank and consultancy.

For a happy retirement, pay yourself first

Ed Slott: That’s easy. Put more money away for retirement. I would tell myself what I am now advising other young people to do. Take it off the top, what some people call “paying yourself first.” This way, you never get your hands on the money. There’s always a reason to say you cannot afford it or something came up. If you don’t pay yourself first, something will always come up and you’ll be missing out on valuable compounding years. I often say that the greatest moneymaking asset anyone can possess is time, and young people have more of it. That needs to be capitalized on as soon as possible. . . . 

In addition, max out all you can in your company retirement plan or in your self-employed plan if you have one. Save all you can. You will need all you save, and probably more.                                         

Ed Slott provides retirement education and analysis at his websites, and and Ed created the PBS program, “Ed Slott’s Retirement Rescue 2014!”

Seven retirement financial tips for 30-somethings

Martin Frost: So much has changed since I was 30 that it’s hard to know where to start. I will answer this in the context of advice that I would give to my three daughters — all of whom are now over 30. This will include some advice I have already given them.

First, start putting a little money aside now for the college education of your children, no matter how young they currently are. Getting a jump on the cost of college will make it easier for you to do some retirement planning for yourself.

Second, if you have time, take a course on retirement planning through your local junior college or some neutral organization. Don’t sign up with someone who will want to pressure you into buying their particular retirement package.

Third, fully explore the retirement investment options offered by your current employer. IRAs and 401(k) plans didn’t exist when I was 30, but many employers will offer at least a partial match for what you set aside on a regular basis. . . .                                       

Make an initial investment in the stock market (it doesn’t need to be very large) so that you will start following the market and learn what equity investing is all about. . . .                                        

Once you can afford to do so, buy rather than rent so that you are building up equity in a house. The real-estate market can be fickle, but over the long haul you will probably come out ahead. {NOTE from Bob: The key words are "Once you can afford to do so .... See Mortgage, Home-Equity Woes Linger}.                                       

Avoid credit-card debt like the plague. You don’t want to find yourself in a situation where you have a big debt service each month and have nothing left to save. I know that credit-card debt is tempting because it is so easy to get multiple cards these days, but don’t paint yourself into a corner.

Finally, save a little something out of each paycheck. You can start small, but get in the habit. Once your income goes up you can start saving a little more. And once your savings reach a certain amount, invest what you have rather than earning next to nothing in interest. Be conservative in your investments, but put your money to work for you."

Summing Up

The foregoing contains lots of good advice for all of us.

But especially for the 30-somethings and younger out there, I urge you to take the time to consider each of the comments carefully, reflect on their common sense and simple approach, and then take the appropriate savings and investment actions  for the long haul.

And do it NOW.

And to my fellow oldsters, I say this --- please pass this good advice along to someone young, just like many of us undoubtedly wish someone had passed it along it to us when we were 30-somethings and still in a position to take the necessary steps to provide adequately for our future financial selves.

That's my take.

Thanks. Bob.

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