It’s not too early to start planning for your retirement

by Maren Solberg

This man is one of Wisconsin’s new young professionals who just entered the job market and is making more money than he knows what to do with. Why not buy a $2,000 television?

Let’s talk cold, hard cash. Suppose that instead of buying the massive television, this man invests that $2,000 in a retirement account. Thirty years from now, he could have $112,170 in his pocket. If he decides to buy the television today and instead invests that $2,000 ten years from now, he will make only $59,556 in 2034 off the same investment. That television just cost him $52,614.

The actual costs of these decisions add up quickly. With the uncertainty of Social Security, financial advisers agree that young professionals cannot expect sufficient income in retirement if they do not begin investing now. Unfortunately, the enticement of material goods and the long stretch of time before retirement blind young professionals to the realities of investing.

“Invest early, invest often,” advises Ken Karr, an investment adviser for McSherry Associates. If ignored, this free advice could cost tens of thousands in later years. While most young professionals prefer prime rib to generic canned cat food, they are still not taking the necessary steps toward a solid retirement fund.

The most typical excuse is a combination of reasons. A high debt load or low-income top the list of common defenses. “When you start out, you have to a.) start out at the bottom of the corporate ladder or b.) pay off student loans,” Karr says. Yet with careful financial planning, making loan payments and still saving a small percentage of a paycheck can be easy. Karr suggests setting up an account to take out a certain percentage from each paycheck. “Once you have that 6 to 10 percent taken out initially, it’s painless after that,” he explains. Keeping this “out of sight, out of mind” attitude can build an admirable fund, especially after wise investing.

A lack of knowledge combined with the excuses of “it’s too early to plan” are the other intimidating factors keeping 20- to 30-year-olds from planning their retirements wisely. According to the Employee Benefit Research Institute (EBRI), workers ages 20 to 39 are less prepared for retirement than the average employee, but equally as confident that they will remain financially stable. This group also believes they will retire earlier than the typical age of 65, leading to the conclusion that lack of planning and an optimistic attitude will guarantee a secure and early retirement.

Unfortunately, this is the real world. The retirement age is gradually increasing, and Social Security is expected to run out in the next few decades. A survey by the University of Wisconsin Survey Center revealed that 85 percent of 20-to 39-year-old Wisconsin residents admit they can’t rely on Social Security. But in blatantly ignoring such obvious truths, this generation of professionals may spend their retirement years serving food at the local restaurant instead of just dining there.

Investing too late will not only make cat food suddenly seem appealing as an entrée, but also be more costly in the end. Increasing tax rates and rising costs of living make saving in later years more difficult. LaVon Schroeder of Oshkosh knows the drawbacks of postponing planning. “It’s costing me more now in my early 50s than it would have in my early 20s or 30s,” she says. “The financial impact is painful for those who don’t have things in line.”

A basic lack of knowledge also hinders many young professionals, including Kyle Augustine, a 25-year-old Green Bay resident. “I never get information about setting up a retirement account, and neither does anyone I know. It’s just not something we think about, it’s too far ahead,” Augustine says. Yet despite this obvious need for knowledge, financial firms do not market to this generation.

“It’s a matter of economics. If we attract someone who can invest $5,000, it still costs the same for us to spend the time [on that account] as it would on a larger investment,” Karr says. “Our audience that we typically market to is more affluent, but we certainly welcome any new clients.” This explanation is normal among financial firms; after all, they are businesses. To be cost effective, financial institutions use magazines and websites that are easily accessible and inexpensive, but leave only a few non-profit organizations to inform the public.

Organizations like the non-profit EBRI are working to educate the nation. “Public service announcements are now being shown nationally in collaboration with the National Association of Broadcasters. We’re obviously trying to reach as many folks as we can, but we have budget constraints,” explains Steve Blakely, editor and communications director for EBRI.

Unfortunately, efforts to educate young professionals on the importance of investing in retirement still go unnoticed, largely because of the bling-bling in the way. These new workers are living in the moment, and right now, they have money and want to show it. “It’s a matter of societal expectations,” Karr says. “We are a consumer nation, without a doubt. You have to have the discipline.”

Those who have taken disciplined steps toward creating a retirement account are ahead of the majority. According to the Teachers Insurance and Annuity Association and College Retirement Equities Fund (TIAA-CREF), less than 25 percent of workers ages 25 to 34 are “giving a lot of thought to financial needs in retirement.” For those not in this 25 percent, stop being lazy, find a funds manager, and start making your future self rich.

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