According to a survey from the Teachers Insurance and Annuity Association of America (TIAA) Institute, 13% of Americans say they are unsure of how to fund their retirement. Furthermore, study results from Vanguard showed that investors who started saving for retirement at 25 saving 9% of their salary annually with moderate allocations, finished with 13% more than by contributing 6% in an aggressively-invested account.
Lenox Advisors Senior Vice President Abbe Large joins Yahoo Finance to give insight into some of the best ways younger investors can prepare and strategize for retirement.
Large comments on easy ways for investors to save: “I can’t stress enough that inflation is truly one of those systematic risks that you can’t diversify away from. But what you can make sure you understand is your budget. Your inflows and outflows and not let lifestyle creep overcome that. There are small things that you can do to save money. Meal prepping is a very small example of being mindful of how much it is to buy lunch instead. Another tip is to take advantage of the Affordable Care Act. I don’t know if people know this, but parents can keep their children on their family health plan until they turn 26. “
For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.
Editor’s note: This article was written by Nicholas Jacobino
Video Transcript
RACHELLE AKUFFO: Well, a recent survey finds 13% of Americans are unsure how they will fund their retirement, according to the TIAA Institute. But there are steps younger investors can take to shore up their financial security and have a better relationship with money. Let’s bring in Abbe Large, Lenox Advisors senior vice president to discuss more.
Thank you so much for joining us, Abbe. So for a lot of people they think about retirement, it’s far away, not really a thought that they’re having at the moment. How should younger investors– and when they’re planning for retirement, how should they be viewing this period, especially as we’re still in high inflation?
ABBE LARGE: I’m so glad you asked that question. I think the relationship with money is a very important conversation to have. Some people have money, but they may not be able to handle the money.
And I believe at an early age, it’s important to discuss this. Be comfortable with it, confident, and not make that money conversation taboo. It’s as important as discussing future family.
So as we know, money can’t buy love, but it can certainly tear it apart if you aren’t comfortable speaking about it. And with the current market landscape, it’s just an example of systematic risk, which will always be there. We’ll always be subject to it no matter what phase of life you’re in, inflation, interest rates, markets, exchange rate risk. And at Lenox we talk to our clients about it not necessarily being about asset allocation so much as it is about asset location.
We talk about investing in three buckets, right? Taxable stocks, bonds, funds, ETFs, et cetera. Tax defers, your company 401k, and matching capabilities, IRAs. And then the tax-free bucket, Roth IRAs and whole life insurance. I think understanding those three buckets while having new money to contribute to each and having a professional advisor to help recalibrate and pivot when needed is very important.
RACHELLE AKUFFO: And Abbe, as with other investors, when we see some of these wild swings in the market, a tech rally to end out the year, and now a lot of uncertainty depending on what the Fed does next, what are some of the mistakes that you see younger investors making given that they do have a much longer trajectory before they get to retirement?
ABBE LARGE: Yeah. I can’t stress enough that inflation is truly one of those systematic risks that you can’t diversify away from. But what you can make sure you understand is your budget, your inflows and outflows, and not let lifestyle creep overcome that.
There are small things that you can do to save money. Meal prepping is a very small example of being mindful of how much it is to buy lunch instead. Another tip is to take advantage of the Affordable Care Act.
I don’t know if people know this, but parents can keep their children on their family health plan until they turn 26. So they don’t necessarily have to pick up their current employer’s plan. And they can save a ton of money that way and instead deploy those dollars into their savings and investments.
RACHELLE AKUFFO: And Abbe, as you mentioned talking about your finances, it could be a tough conversation to have. It could be even tough for people to face it themselves. If you are, say, getting married or you’re thinking about partnering with someone and you’re not sure about the dynamics of how much debt or what they’re investing or their saving approach is, what are some of the top three things you think people should sort of lay on the table as they’re thinking about financial harmony?
ABBE LARGE: I think building out generational wealth is a privilege that can be discussed very early on. Having those conversations at the dinner table together helps children understand that money doesn’t grow on trees. It’s about building wealth, but also respecting how it got there and how to handle the money. It’s about understanding that it’s not an entitlement, but it’s a privilege and learning how to respect it.
RACHELLE AKUFFO: And just quickly, we showed a graphic there about Gen Z having a higher rate of separate accounts. Is that a trust issue or is that sort of just the days of having joint accounts, if you were a Baby Boomer, are just done?
ABBE LARGE: I don’t know. I think it’s different. I like the fact that we could have our own accounts. I think it’s a form of empowerment for people.
You can also have a joint account. I don’t think there’s anything wrong with that. I think one of the biggest dangers though posing young investors is this lifestyle creep. It’s big.
And understanding the best time to save is when you don’t have other fiscal responsibilities like a home or a family that you’re growing. I think creating a budget that is sustainable with the income that you’re earning and not over leveraging debt, I mean you could really get stuck with revolving debt. So paying off credit cards when they come due, that also helps build your credit at the same time.
RACHELLE AKUFFO: Certainly important early steps people can be taking. Appreciate you joining us, Abbe Large, Lenox Advisors senior vice president. Thank you so much.
ABBE LARGE: Thank you for having me.
