According to a new USA Today report millennials will have to save at least $1.8 million dollars to sustain their quality of life through retirement. KNX 1070 Money Hour hosts Frank Mottek and Charles Feldman interviewed Stephen Rischall, co-founder and financial advisor at 1080 Financial Group, an expert in financial planning for millennials, to discuss the challenges facing young people and saving for retirement today.
Frank Mottek: Of course all the experts are saying it is important to start saving now for retirement if you haven’t already no matter how old you are, and now there’s a particular number for one group, at least $1.8 million dollars. That’s what various studies indicate is the magic number for millennials to maintain their standard of living when they retire.
Ron Kilgore: With us now Financial Planner Stephen Rischall whose based in Los Angeles with 1080 Financial Group, and I understand you’re a millennial, right, and you advise millennials. What do you tell them?
Stephen Rischall: Yes I am, thanks Frank and Ron for having me today. You know you’re right, you hear that $1.8 million figure, it’s big, it’s scary, it can be paralyzing. The key really is you have to not let that get to you. To be smart with money you need to develop some mental toughness, because money and emotions, they’re connected. You see, it’s not how much you make, it’s how you save and spend it that’s most important
Ron Kilgore: And the big key is this is a number for people born in the 1980’s. Those who are born in the 1990’s we understand will need even more than that, $2.8 million dollars, that’s just absolutely incredible.
Stephen Rischall: Yes that’s a big number. Bottom line is you have to start somewhere, right, you got to just do it. Fortunately for millennials time is on our side. You know, if you think of it like marathon. If you’re not a runner, the idea of completing 26.2 miles is a daunting task. At some point you have to put your feet on the pavement, you have to start moving forward. Over time your practice, your patience, your determination, it’s going to pay off. Then one day you’re going to complete that marathon. You’re going to look back at it and you’re going to realize it all started with that first step. Some people might even look at the time it took them to run that marathon and then challenge themselves to do better. Saving for retirement, it’s really the same thing, especially for young people. You can’t do it all at once.
Frank Mottek: Right, it seems to be getting tougher with rents up, millennials of course can’t even begin to think about buying a place and you have to eat right, you need transportation and is there any money left for them to save for retirement?
Stephen Rischall: Ya, I mean right, with over $1 trillion dollars in student loan debt. You know it’s tough to buy housing, especially out here in Los Angeles if you’re a young person. Look at it this way. The S&P 500 index, through the ups and downs over the past 30 years, it has an average return of about 9%. Now we know we can’t look at the past to predict the future, and personally I feel that 6% to 7% is a lot more realistic for the next 30 years. But let’s say you’re investing with a Roth IRA, which by the way is a great way for anyone to start, because having tax free withdrawals at retirement is a major plus. But currently millennials can save $5,500 each year in a Roth. Now if you did that each year over the next 30 years, and you averaged about that 7% return, that’s over $500,000 right there. You extend that to 40 years and you’ll already be above $1 million dollars.
Ron Kilgore: But a lot of millennials are still living at home and I’m sure the argument is how could I afford to save if I can’t afford to move out?
Stephen Rischall: That’s true, again it all starts with that first step, if you could just save that $5 per day, ditch the coffee in the morning or the espresso and trade it in for some water or just start brewing your own coffee at home. There’s a lot of creative ways that you can find if you have that discipline with your spending to really save more money. Another one a lot of young people leave on the table, it’s the 401(k). Look if your employer offers a retirement plan, use it, especially if they match your contributions. Talk about a retirement bonus, that’s extra money from your employer and it’s your choice to leave it on the table. So big message to millennials if your employer has a 401(k), you better sign up for it.
Ron Kilgore: Alright, anything else millennials should do at this point. What about the debt loads and the student loan problem, what’s your advice for millennials wrestling with all this debt?
Stephen Rischall: You’ve got to prioritize this, it’s definitely a balancing act, when you have school loans or some of them with credit card debt. You know bottom line if you have credit card debt especially, you got to pay it off, you got to get that paid down as fast as you can. Trust me the banks and the credit card companies, they don’t need more money, you don’t need to pay them and that’s where your highest interest rates are going to be. If you’ve got ways to consolidate your school loans and bring those payments down, that’s good too. But do not sacrifice saving for your retirement, even if it’s just $50 a month or $100 a month. We all know that we can afford it, if we take the time and we discipline ourselves to go into that habit of making that something that’s a priority for us.
Frank Mottek: So based on the millennials that you deal with, are they starting to get the message?
Stephen Rischall: You know they are, it’s interesting, I’ve found it more difficult to work with younger people because they’re not used to thinking about retirement. I think that’s with every generation, not just millennials, when you’re young you’re not thinking about retirement. There’s so many other things in front of our faces vying for our pocket book. It’s not easy, but definitely a lot of our clients are seeing the big picture. At 1080 Financial Group we use a lot of really cool technology tools, I think that’s a great way to bring young people into the conversation and get young people more aware of what’s happening with their money.
KNX 1070 Money Hour is Los Angeles’ #1 consumer and business program. Frank Mottek and Charles Feldman host the KNX Money Hour weekdays at 1:00pm on KNX 1070 NEWSRADIO and cbsLA.com Make more. Save more. Be smarter with your money.