Planning for retirement has changed tremendously over the years. Many years ago, you would retire with a pension, receive a good social security benefit and you were set. Life expectancy wasn’t as long so once you retired you simply needed to make sure that your monthly expenses weren’t more than the guaranteed income you were getting from your pension and social security payments.
Fast forward to today and that picture has changed dramatically. Due to many factors such as longer life expectancies and low interest rates, pensions have been going the way of the dinosaur. In fact, many companies have been offering lump sum buyouts of the pensions to their employees in order to get their pension liabilities off their books. If you started your work career in the last 15-20 years, the odds are slim that you will have a pension to rely on during your retirement.
Then there is social security. It is no secret that social security is in dire straits. Current estimates are that funds from the program will be depleted in the next 15-20 years. Ask any young person what they think they are going to get from social security when they retire and you usually get an answer that ranges from a laugh to I’m really going to get screwed on this and get nothing. Although it is impossible to say for sure what will happen with Social Security it seems extremely likely that continuing to increase the retirement age and reduction of benefits for younger workers could be possible outcomes.
With all these changes in retirement one thing is for certain – younger workers are now almost completely dependent on themselves and their own savings to be able to retire. Long gone are the days of cushy pensions and sizable social security payments. Thankfully with most companies now automatically enrolling new employees in their 401k plan and company matching of 401k contributions it puts younger workers at more of an advantage for saving than their parents or grandparents.
This does, however, create a whole new set of questions and possibilities for younger workers. How much do I need to save each month? Should I max out my 401k plan? Should I contribute to a Roth IRA? Should I focus on paying off my student loans or invest my extra money? How should I invest my money now? The questions that one must ask themselves now are much more involved than ever before.
While the need for financial advice for younger individuals is now more important than ever there is an unfortunate situation that has developed in how many of the big brokerage firms view them. Many large wirehouse firms will not pay advisors to manage accounts that are under $250,000 and in a few cases $500,000. Financial advisors at these large firms have no incentive to work with younger clients because they do not get paid to work with them. If you are 30 years old and have $100,000 saved that is a great start and you are doing a terrific job of saving. Most likely you are going to have a seven-figure account someday. I think it is incredibly short sighted that these large firms simply are overlooking or passing by younger up and coming investors. Who is going to want to invest with one of the big firms in the future when the message they are sending now is that you’re not worth our time until we can make what we deem is an acceptable amount of money off of you?
So what is a young investor to do? Thankfully there have been many financial advisors in recent years opting for independence from the large firms. There are many reasons for this, but one is for the ability to be able to serve this sadly neglected area of the market. Making small changes with your finances at a young age can yield big results down the road. Take, for instance, investing $5,000 into a Roth IRA each year starting at age 25. At age 65 assuming an 8% rate of return that small amount of savings each year would be worth nearly $1.4 million! It is exactly for reasons like this why all young workers should be working with a financial advisor.
Retirement is complex. Creating an investment plan is hard. Executing it is even harder. With busy lives, work schedules, and raising young families it is nearly impossible to expect younger investors to have the time and knowledge to make sure their financial house is in order. One of the things I have enjoyed most since joining the ranks of the independent financial advisors is the ability to work with this group of young investors. I have found that they are eager to learn, listen, and follow advice. And being in the same age group myself I can relate to the issues they are facing. I feel extremely fortunate that I am now able to help up-and-coming Millennials and Gen Z’s make sure they are properly navigating the ever-challenging retirement and financial game. While the large firms seem less interested in working with younger clients, know that Bluewater Investment Strategies is eager, ready, and willing to help you!
Portfolio Manager & Financial Advisor
Bluewater Investment Strategies, a member of Advisory Services Network, LLC
All views/opinions expressed are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.