According to a survey by the Teachers Insurance and Annuity Association of America (TIAA) Institute, 13% of Americans say they don't know how to fund their retirement. Additionally, Vanguard research shows that investors who started saving for retirement at age 25 were more likely to save 9% of their annual salary in a moderate allocation and contribute 6% in an actively invested account. They also ended up saving 13% more.
Lenox Advisors Senior Vice President Abbe Large joins Yahoo Finance to provide insight into the best ways for young investors to strategize for retirement.
Great comment on how investors can easily save: “It cannot be overemphasized that inflation is truly one of those systematic risks that cannot be diversified. What you can do is budget. Reduce your inflows and outgoings to avoid succumbing to a deteriorating lifestyle. There are small things you can do to save money. Meal prepping is better than buying lunch instead. A very small example of being conscious of how much it costs.Another tip is; Affordable Medical Care Act. I don't know if people know this, but parents can keep their children on family health insurance until they are 26 years old. ”
For more expert insights and the latest market trends, click here to watch the full episode of Yahoo Finance Live.
Editor's note: This article was written by Nicholas Jacobino
video transcript
Rachel Akuffo: According to the TIAA Institute, a recent survey found that 13% of Americans are unsure how to fund their retirement. But there are steps young investors can take to strengthen their financial security and develop a better relationship with money. We invite Abbe Large, Senior Vice President at Lennox Advisors, to discuss this further.
Thank you very much for joining us, Abe-san. So for many people, thinking about retirement is far in the future and not something they're thinking about right now. How should young investors, and those planning for retirement, view this period, especially in a time of still high inflation?
Abe Raj: I'm so glad you asked that question. I think our relationship with money is a very important conversation to have. Some people have money but cannot handle it.
And I believe it's important to talk about this at an early age. Be safe and confident and don't let conversations about money be taboo. It's just as important as discussing your future family.
As we all know, money can't buy love, but it can certainly tear you apart if you don't feel comfortable talking about it. And in the current market environment, this is just one example of systematic risk, which is always present. No matter what stage of life we are in, we are always affected by inflation, interest rates, market and currency risks. And at Lennox, we tell our clients that it's not necessarily the asset allocation, but the location of the assets that matters.
We talk about investing in three buckets, right? Taxable stocks, bonds, funds, ETFs, etc. Tax deferral, your 401k, and matching features, IRA. and tax-free buckets, Roth IRAs, and whole life insurance. I think it's really important to understand these three buckets, invest new money in each, and hire professional advisors to help you readjust and pivot as needed.
Rachel Akuffo: And Abbe, like other investors, has seen all this market volatility, the rally in tech stocks to end the year, and a lot of uncertainty surrounding what the Fed will do next. When you do that, you wonder what the mistake was. Do you see young investors making profits, given that they have a long way to go before retirement?
Abe Raj: Yeah. It cannot be overstated that inflation is truly one of those systematic risks that cannot be diversified. But what you can be sure of is your budget and your inflows and outflows, and you need to make sure your lifestyle doesn't override it.
There are small things you can do to save money. Meal prepping is a very small example of being aware of how much it costs 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 family health insurance until they are 26 years old. Therefore, you do not necessarily need to be insured by your current employer. And by doing so, you can save a lot of money and use that money to save or invest instead.
Rachel Akuffo: And Abbe, you mentioned talking about your finances, which can be a difficult conversation. It may be even more difficult for people to face it on their own. For example, if you're getting married or thinking about partnering with someone and you're not sure how much debt they have, what they invest in, or how they save, the top What are some of the three items that you think should lie on the table in a sense when people think about economic harmony?
Abe Raj: I think building intergenerational wealth is a privilege that can be discussed very early on. Having such conversations together at the dinner table will help children understand that money doesn't grow on trees. It's about building wealth, but it's also about respecting how you got there and how you handle your money. It's about understanding that it's a privilege, not a right, and learning how to respect it.
Rachel Akuffo: And right off the bat, we put a picture there that shows Gen Z is more likely to have a separate account. Is it a matter of trust, or if you're a baby boomer, does that mean the days of joint accounts are over?
Abe Raj: I don't know. I think that's different. I like the fact that I can have my own account. I think it's a form of empowerment of people.
You can also have a joint account. I don't think there's anything wrong with that. But I think one of the biggest dangers to young investors is the insanity of this lifestyle. It's big.
And understand that the best time to save is when you don't have other financial responsibilities, such as a home or a family to raise. I think you need to create a sustainable budget with the income you are making and avoid overusing debt. So you can really end up in revolving debt. Therefore, paying off your credit cards when they are due will help you build your credit at the same time.
Rachel Akuffo: Certainly, the early steps people can take are important. Abbe Large, Senior Vice President, Lennox Advisors, thank you for joining us. Thank you very much.
Abe Raj: Thank you for calling me.
