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Why millennials have to be smarter than their parents

October 25, 2013 By Liz Weston

Help at financial crisisNerdWallet recently published a fascinating study contending that high debt loads will prevent today’s college graduates from retiring before age 73. I have a few nitpicks with the study, but the underlying message is clear: millennials will have to be a lot smarter than previous generations if they want a decent, on-time retirement.

First, my nitpicks.  NerdWallet contends the current average retirement age is 61. It’s actual 62 for women and 64 for men, according to the most recent research by Alicia Munnell, director of the influential Center for Retirement Research at Boston College. (Munnell authored another interesting brief showing that the “real” Social Security retirement age is now 70, which gives people the same expected length of retirement they had back in 1940. Furthermore, an argument could be made to move it to 73 for millennials, who will live even longer than Boomers. I won’t make that argument, though, since I wouldn’t have to wait that long…I’m sure most others wouldn’t, either.)

The NerdWallet study also assumes that paying off student loans inevitably will prevent millennials from making significant contributions to their retirement funds for the first 10 years of their careers—years when they would get the most benefit from retirement contributions. Thanks to the miracle of compounding, $1,000 contributed to a retirement account can grow to $20,000 or more by retirement age. Wait 10 years to contribute that first $1,000, and your growth is cut by half, to $10,000.

So here’s what millennials should know:

Retirement contributions can’t wait. Retirement really has to be your top priority from the time you get your first paycheck. You can’t get back lost opportunities to save and nothing—including debt repayment—is more important than this.

Don’t be in a rush to pay back student loans. Federal student loans, especially, are flexible debt with a ton of consumer protections. If you can’t pay your student loans and contribute to a retirement fund, then consolidate your loans to a longer payback period so that you can put some money away for tomorrow. Yes, you’ll pay more interest on your loans, but that cost will be swamped by the growth of your retirement accounts once you factor in the tax breaks and compounding you’ll get. If you have a company match, the calculation’s even more of a slam dunk.

Get a better 401(k). Beggars can’t be choosers, and many millennials will have to take what they can get in this very tough job market. As they build their skills and networks, though, they should start looking for positions with companies that offer good 401(k)s with generous matches. In the meantime, they should contribute to any workplace plan that’s offered. No plan? Set up an IRA with automatic transfers to fund it. You’ve got to find a way to save if you want to quit work someday.

Filed Under: Liz's Blog Tagged With: debt, debt repayment, millennials, Retirement, retirement savings, Student Loans

Friday’s need-to-know money news

October 25, 2013 By Liz Weston

Old Woman Hand on CaneToday’s top story: The warning signs of elder financial exploitation. Also in the news: Five harmless things that can hurt your credit, news apps to help college and financial aid searches, and what to do if you win the lottery.

Warning Signs of Elder Financial Exploitation
How to detect financial exploitation of our seniors.

5 Seemingly Harmless Things That Can Hurt Your Credit
How library fees and traffic tickets can ding your credit score.

20 new apps to help your college and financial aid search
Finding financial aid from your smart phone.

7 Painless Ways to Cut Expenses in Retirement
Ways to cut back without feeling the pinch.

Spending: What you need to know about winning a lottery
Someone has to win.

Filed Under: Liz's Blog Tagged With: college, Credit, elder finances, financial aid, Retirement, tips

Thursday’s need-to-know money news

October 24, 2013 By Liz Weston

RelationshipToday’s top story: Why Millennials may not be able to retire until their 70s. Also in the news:How to avoid cell phone bill surprises, the pros and cons of taking social security early, and how to calculate if you can refinance your home.

Millennials May Not Be Able To Retire Until Age 73
Crippling student debt could force Millennials to work an extra decade.

How to Avoid Cellphone Gotchas
Don’t let your cellphone become a money pit.

What age is best to start taking Social Security?
The pros and cons of taking social security early.

End-of-Year Tax Planning Tips
It’s never too early to start getting your taxes in order.

How to Figure Out If You Can Refinance Your Home
Two simple ways to calculate refinancing options.

Filed Under: Liz's Blog Tagged With: cell phone bills, millennials, mortgage, refinancing, Retirement, Social Security, tax tips

Wednesday’s need-to-know money news

October 23, 2013 By Liz Weston

Today’s top story: How to get the credit reports you’re entitled to. Also in the news: Demystifying credit scores, how to master your holiday shopping list, and what kind of credit you’ll need to get a student loan.

I Want My Free Credit Reports
How to get what you’re entitled to.

What to Do When Your Partner Commits Financial Infidelity
What do you do when your partner goes rogue?

Do I Need a Good Credit Score to Get Student Loans?
Is this the one loan where credit history doesn’t matter?

10 Things Consumers Don’t Understand About Credit Scores
Demystifying your scores.

How To Master Your Holiday Shopping List
The sooner you start shopping, the better.

Filed Under: Liz's Blog Tagged With: Credit Reports, Credit Scores, holiday shopping, Student Loans

Tuesday’s need-to-know money news

October 22, 2013 By Liz Weston

Today’s top story: A bill in front of Congress could change the way credit scores are calculated. Also in the news: Lifehacks for your wallet, how using your middle name could hurt your credit rating, and how to save money on Halloween Costumes.

How Your Middle Name Could Hurt Your Credit
The slightest variation in your name could damage your credit.

6 Frightfully Frugal Halloween Costumes
Don’t let your wallet get tricked.

11 Life Hacks — For Your Wallet
Some creative tips to help you save money.

Should credit scores include rent and cable bills?
Congress could revamp the way credit scores are calculated.

8 Tips for Saving Money While Traveling This Holiday Season
Holiday travel without the holiday headaches.

Filed Under: Liz's Blog Tagged With: Credit Score, halloween, holiday travel, Identity Theft, lifehacks

What are you willing to give up?

October 22, 2013 By Liz Weston

HopeAs a reporter I learned a technique that saved my sanity. I asked my bosses to make choices.

In journalism, as in other fields, there’s far more good work to do than there is time to do it. Editors can and will keep piling on the assignments. So I learned, when my plate got too full, to ask my bosses to help me prioritize.

Here’s how I did it. I always said yes to the new assignment, then followed immediately with, “But I’m also supposed to do this and this and this. Which of these other projects should I drop?” Or “back burner” or “table” or whatever euphemism worked best with this particular editor.

Saying yes made it clear that I was a team player, that I valued my boss’ direction and that I wasn’t one of those pain-in-the-ass whiners who had to be wrestled into doing actual work. But quickly reviewing my current assignments reminded the editor of all the other work she’d tasked me with.

A more experienced journalist had explained that it was part of my boss’ job to help me prioritize. Managers are supposed to keep an eye on the company’s ultimate mission and encourage the actions that support that mission. Until he said that, I’d been saying yes to everything and driving myself nuts trying to fit it all in.

Fast forward a few years. I’m now my own boss, writing for different clients and once again faced with far more work than time to do it. Now I’m the one that has to make choices. I have to figure out what my ultimate mission was and what actions support it (and which don’t). I also now have a life—a husband and a baby girl I want to spend time with. Suddenly it became a lot easier to ditch the work that didn’t pay enough (or at all), and focus on the stuff that did.

There’s one other place it can be helpful to ask what you’re willing to give up, and that’s negotiating with family members about financial priorities.

First, you need to sit down together and set some priorities—what’s most important to accomplish, where you want to be in five years, 10 years, 30 years. You figure out what you need to do to get there, then wrestle your priorities into place. (Quick example: You want to take a vacation with your family next year, replace your car five years from now and retire before you’re 80. You figure how much you need to save for each goal and adjust until it’s doable. Maybe to save enough to retire by age 65 you’ll have to put the Disney cruise off a couple of years…that kind of thing.)

When new wants rear their heads—somebody’s agitating for a bathroom remodel, say—you return to those priorities and decide together what you’re willing to give up. Maybe the bathroom remodel is important enough to delay your retirement until 67 or to continue to drive your old car another five years. Maybe it’s not. But the exercise reminds you of what you really want, and helps you decide—together—when and how to adjust those priorities.

Filed Under: Liz's Blog Tagged With: Budgeting, financial priorities, goals

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