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The Tom Joyner Show
Money Mondays

December 2, 2019

Retirement Advice by Generation
Mellody Hobson on the Tom Joyner Morning Show - Money Mondays
Mellody discusses the different retirement challenges faced by different age groups.
This morning we are continuing our retirement series. What is on tap for today?

This morning I want to provide retirement advice by generation. Each age cohort – be it Boomers, Gen Xers, or Millennials and Gen Z – faces different challenges as they work to prepare for their retirement. This morning, I want to provide some tips that will help each group improve their retirement outlook.

Great. Let’s start with those who are closest to retirement: the Boomers. How are they doing when it comes to saving for the golden years?

It’s a mixed bag. Research by the Insured Retirement Institute suggests trouble for some Boomers. According to the study, nearly half (45%) have NO retirement savings. Of those who do, 28% have less than $100,000. On the other hand, Boomers are burdened with significantly less debt – student loans, mortgages, and credit card charges – than other generations. They also hold more equity in houses, with homeownership being much higher than younger generations. But overall, like the other age cohorts, retirement savings are not where they should be.

What advice would you give to Boomers, Mellody?

There are three things I would recommend. First, don’t let convention determine your retirement date. If possible, consider working past the mythical retirement age of 65 that was set for a different time. By delaying filing for Social Security and working longer, you can maximize your Social Security Benefits, which will be very helpful if your retirement nest egg is not as large as you would like it to be. Secondly, remember that it is never too late to start investing. If you can, consider opening a Roth IRA, as they offer a number of advantages, such as catch-up contributions of an extra $1,000 when you are 50, tax free capital gains, and no contribution caps or age related rules for withdrawals. And finally, if you are uncertain of your options and your path to retirement, consult a financial professional, as they can help you to understand your options and take advantage of opportunities.

What about Gen Xers – those born between 1965 and 1978?

Gen Xers tend to be more clear-eyed about their retirement savings shortcomings that other generations. A TD Ameritrade survey found 73% of Gen Xers know they need to do more for their retirement savings, compared to 66% of Millennials and just half of Boomers. However, Gen X has the lowest retirement plan contribution rate of any generation.

The good news is that Gen Xers still have still have 15 to 20 years until retirement to catch up. If you are a Gen Xer, you are in the prime of your career, likely earning more than you will at any other point in your life. Now is the time to increase your retirement contributions! There are two good reasons to keep it high, and they are interrelated. First, since you are likely in the midst of the best earning period in your life, you want to take advantage of that. Second, when you do, you will also be shielding yourself from some taxes, because these contributions will not be taxed.

On the flip side, Gen Xers need to stop treating their 401(k) accounts like ATMs! They tap into their retirement accounts more than any other cohort. Your retirement accounts should be sacrosanct. Do not touch them, no matter how tempting it may be. Finally, now is the time to work to pay down debt. Generation Xers have the most student loan debt of any generation, with an average of $39,584 per borrower, and higher levels of credit card debt than other generations. If you prioritize paying down high interest debt, it will allow you to put the money you save away for your future!

What should Millennials and Gen Z be doing?

I have three tips for Millennials and Gen Z. First, put as much money as you can in your 401k, especially if your employer will match it. If you don’t have access to an employer sponsored plan, look into an Individual Retirement Account (IRA).

Second, do not fear the stock market. The oldest Millennials experienced the tech bubble’s burst and the financial crisis, while younger Millennials and Gen Z saw their parents struggle during the Great Recession. This has made many hesitant about investing, but by staying out of the market or being overly risk averse in your portfolio allocations, you are missing out in retirement. It is especially important for young people to invest early, because what you invest now will be able to compound for a very long time.

And younger workers – Millennials and Gen Z alike – should work to cut down on their expenses. Delaying gratification will benefit you immensely in the long run. While you may not want to have roommates or live with you parents, just doing this for 3 years will enable you to pay down your student loans and cut back on housing costs, allowing you to get a jump on your retirement. The same is true for being frugal when it comes to eating out, or going on expensive vacations. Every dollar you put away now will mean many, many more in 40 years, and can put you on track to retiring in 40 years, rather than 55 years.

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