How to talk to your college grad about saving for retirement

Retirement planning can be a tough sell to someone in their early 20s.

But it’s critical to have this conversation early on with your soon-to-be working child. Time is everyone’s biggest ally when it comes to saving for retirement, so the sooner they start saving, the better off they’ll be.

Try sharing your own successes and failures — maybe you started saving early and are better off for it, or you put off retirement planning for years and now you’re struggling to make up for lost time. Either angle is a great selling point and a valuable life lesson to pass on.

The following are more helpful tips to engage your child in a productive conversation on retirement.

That’s right — the average member of the Class of 2016 graduated with $37,172 in student loan debt. This is the most pressing financial challenge facing college graduates today. It can hamstring your child’s budget for years after graduation.

Therefore, your first challenge is to simply acknowledge the strain that student loans have placed on your child’s limited cash flow. Empathize with them as they watch money evaporate from their paychecks to repay student loans. Your empathy will show them you understand the situation they’re in, thus giving your retirement advice more credibility.

Next, explain to them that planning for the future doesn’t mean abandoning the present. Through good budget management, they can set aside “fun money” as well as some “future money” toward retirement. Fun money obviously needs no explanation, but let your kids know that money going towards retirement is untaxed and sometimes “matched” by their employer, therefore producing a bigger “bang for the buck” in the long run.

You could even take another step and go over your child’s budget with them to show how student loan payments, fun money, and future money can coexist in real numbers, not hypotheticals.

Sure, you could tell your kids all you want about the importance of saving for retirement. But they might think retirement is something they do when they're a real adult — when they have a family, a high-paying job, and a big house. Besides, “Retirement is decades away, there’s plenty of time,” they’ll say.

You need to create a sense of urgency. Time to show them how compound interest works!

The example below shows how important it is to start saving as early as you can.

The above example should make an impact. When you start saving for retirement is a huge factor, even more-so than how much you contribute. Someone who contributes $500 per month starting at 35 could still have less than another person contributing $250 per month starting 10 years earlier.

Still, most fresh college grads might critically look at this example and ask the following questions:

• Where am I going to come up with that kind of money each month?
• Will it be enough?

These questions are valid. That’s when you tell your kids about potential matching contributions by their employer. If their employer does a dollar-for-dollar match up to a certain percentage, a good portion of their contribution would be coming directly out of their company’s pocket, not their own. Also, let them know that their contribution amount doesn’t have to be set in stone. In fact, they’ll learn soon enough that incremental increases to their contributions will impact their bottom line over time.

The concept of saving for retirement might be so foreign to your kids that they have overblown expectations on how to do it. Ease their minds a bit. Focus on how simple it is to get started and adjust along the way.

First off, remind them that retirement savings don’t have to be actively monitored; it’s not like they’re trading stocks on the market. They can (essentially) set their regular contributions rate — a specific dollar amount or percentage of their yearly salary — and forget it for the time being.

Then, after they set a contribution rate that works for them, they can make a change to that rate whenever they feel the need. For example, let’s say their rent went up so they lowered their contribution rate a little to compensate; or conversely, they find more room in their budget so they can increase their contribution amount. They should set up annual reviews of their plan to make any necessary changes.

The important thing is to get the clock started. They can always revisit their strategy and make any appropriate changes down the road.

Your new grad is going to have a lot of spending temptations after they land their first post-grad job. Plus, they’ll have other living expenses if and when they move out of the house. How can retirement possibly compete with rent, student loan payments, vacations, concerts, and everything else?

That’s where you can help. By now, you’ve probably outlined your dreams for retirement, so share those aspirations with your child. Let them know your goals, fears, when you want to retire, and any other personal experiences. Did you save for retirement when you were their age? Would you go back and do anything differently? These conversations can be powerful lessons for your kids.

Explain to them how retirement, if planned correctly, is like a vacation that can last for decades. Ask them how they would spend their days if they had no obligations. In some cases, their retirement could last longer than they’ve been alive up to this point!

Once you get them thinking about what their retirement could look like, they’ll be more inclined to take saving for retirement seriously and prioritize it accordingly.

Remember, this conversation shouldn’t be a lecture; make it an open and honest discussion about the importance of saving for the future. And don’t forget to make it fun! Retirement is an opportunity to live out your hopes and dreams; sharing your aspirations could be a cool bonding experience with your child when you each learn something about the other.

At the end, you’ll want them to feel good about taking an active role in their financial future. Once you do that, they’ll be on the path toward making smart money decisions as they enter the next phase of their life.

Saving for retirement is a critical part of planning for the future, and the benefit of starting early cannot be understated. Our dedicated colleagues can help you navigate your present and future goals, thus helping you reach your potential. To learn more about how to save for retirement, schedule a Citizens Retirement Checkup® today.