Planning for retirement when you’re young

Most of the people who come in to talk about retirement are already middle aged, and the end of their careers are looming within the next decade or so. Sometimes they’re well prepared, but more often they’re not.

I don’t get the pleasure of working with young couples and individuals as often as I’d like. Yet these people have the opportunity to make the most of their work years. With a little planning, some wise decisions, and a few (minor) sacrifices, they can help get on track for a secure and fun retirement. Add a little luck, and they may even be in a position to extend the fun by retiring early.

A life lived well will, of course, begins with the right mindset. Depending on their personality type, I ask young clients to read one of the following books:

The Richest Man in Babylon, by George Samuel Clason,

Rich Dad Poor Dad, by Robert Kiyosaki

The Millionaire Next Door, by Thomas J. Stanley and William D. Danko

TALK ABOUT BOOKS.

As a CERTIFIED FINANCIAL PLANNER™, I’m in a position to advise young people on all their long-term financial options, but the key to retirement planning is really very simple: Don’t spend all your income as soon as it arrives. Consider a 30-year-old couple making $80,000 a year. If they stay at that income and keep working for another 30 years, they’ll bring in $2.4 million total. Let’s say they get modest raises and end up pulling in $2.5 million to $2.7 million. The question becomes, how much of that are they planning to save?

It would be great if they could save 20 percent, but that can be tough for a couple with young children. Still, there are things we can do.

The power of modest living

They’ll probably end up with a lot more in the bank if they don’t insist on having the best, the newest, the most stylish of everything. Let’s say they need a minivan to haul the kids and their stuff around, and they’ve decided a Honda Odyssey would be a good choice. Depending on the model, they can run out and get a 2014 model for anywhere from $28,825 to $44,450.

However, if they’re willing to get last year’s model, Consumer Reports says they can get it from $23,850 to $37,675, a savings of 17 percent at the low end and 15 percent at the high end. And if they’re willing to drive a 4-year-old minivan, they can get one from $15,525-$27,300, a savings of 46 percent at the low end and 39 percent on the high end.

In other words, by getting that 4-year-old minivan they can save from a third to half on one of their largest purchases. Is this a great deal? In my opinion, absolutely. Is it a big sacrifice? I don't believe so.

They can take the same approach with a home. Instead of getting the ritziest possible house in the swankiest possible neighborhood, they can get a nice house in a good neighborhood. That way they can have it all: a nice house and a nice retirement.

When I begin working with a young family at Heritage Investors, here’s how we get started:

I ask them to read one of the books mentioned above.

I help them get on a family budget.

I ask them to quantify their budget either in Quicken or Mint. (I prefer Quicken, but Mint is free; I let my clients choose.)

I ask them to save up and put aside three to six months’ expenses as an emergency fund. (My wife refers to this as “pillow money,” because it allows her to sleep through the night rather than lying awake and worrying.)

Finally, I ask the family to sit down once a month for a family meeting. They can review what happened well in the previous month and what could have gone better.

Once they’re headed down the right road it’s just boring (in a good way). Saving for retirement and living a fiscally conservative life is not exciting; it’s just a matter of doing the wise thing, one day after the next.

Dave Ramsey says, “If you will live like no one else, later you can live like no one else.”

The people he’s talking about are not buying new cars and big houses; they’re living in modest homes and driving older cars. They’re not insured to the teeth with policies to cover every possibility, likely and unlikely. They seek advice before they’re sold products or services they may not need.

If you’re a young person or a young family, that can be you.