- What do people think about
when they hear the word "retirement?"
I think about the beach:
Waking up every single morning,
packing some snacks, and heading to the shore.
Not a cloud in the sky, not a worry in the world—
just pure bliss.
But what if you can't afford to retire?
According to new research from BlackRock,
Generation Z workers are saving away,
on average, 14% of income for retirement—
that compares with 12% for their older counterparts:
millennials, Gen Xers, and baby boomers.
Research shows that at the same time,
the total share of Americans who think they're on track
with their retirement savings has fallen to 63%
from 68% in 2021.
Do you think at all about retirement,
or is that something that seems super far off?
- I mean...
- Ooh, um...
- Wow, that's a good question.
- Are you saving for it at all or not yet?
- Not at the minute, no. - Okay.
- No.
- I have a 401k.
- Yeah, I mean, I pay taxes, so I have Social Security.
- No, not yet.
- Not capable of doing that yet.
- Not able to do that. - Not at the minute yet.
- No.
- I don't really think about it, although I feel like I should.
- According to Investopedia,
'retirement' refers to the time of life when one chooses
to permanently leave the workforce behind—
or in simpler terms, after you graduate high school,
or college and you start working—
retirement is the ability to no longer work
and continue your lifestyle.
Or, hopefully, have an even more fun one.
So, how does one do that?
Well, with retirement planning.
You may be wondering:
'How am I gonna save so much money to sustain me,
I can barely save enough money now.'
That's a great question, but for now,
let's take a quick gander into when retirement originated.
The earliest record of our modern concept of retirement
comes from the late 19th century.
German Chancellor, Otto von Bismarck,
proposed the idea
of the government providing financial support
for older people 'cause up until that point,
you pretty much worked until you died,
or couldn't work anymore.
It took a few years to come into fruition,
but the German government created a retirement system
and provided for elderly people over the age of 70.
It just so happened that the retirement age
aligned with the life expectancy
in Germany at the time.
No one foresaw the advances in technology
and medicine that would allow
people to live way past 70.
Okay, that's a lot of history, you get the point—
but why does this matter today?
Hello, Barbara, thank you so much
for joining us here today.
- Sure, thank you for having me.
- All right, well, talking about future
and finance, could you define for me what retirement is?
- Retirement is the point in life
where you're no longer active in the workforce,
so you're no longer being paid.
So, the act of planning for retirement is saving money
so that you're able to leave the workforce,
and sustain yourself on your own savings.
- So, can you tell me what are the different ways
of saving for retirement?
- So, the first way to get started on your own
is to either look at doing, I call it the "DIY":
either the traditional IRA or the Roth IRA.
If you're doing it through work,
most likely it's gonna be a 401k—
so then your choice is, how do you wanna save?
Before tax
or after tax?
That's it, those are your two choices.
So the before-tax would be your traditional 401k,
the after-tax would be your Roth 401k.
That's really the breakdown:
You either do it through work,
or you don't do it through work.
And if you don't do it through work, you do it yourself,
which would be a traditional IRA, pre-tax,
or an after-tax Roth IRA.
So we have a pre-tax money type, and then over here,
we have a post-tax money.
So one meaning you're gonna put your money
into retirement savings either before you pay tax,
so you get the tax savings today, and then you pay tax
when you take it out.
Or the other one, which is you pay taxes on it today,
and then you don't pay on it when you take it out.
So those are the two main types of taxation
for saving for retirement.
For most people who have a job, who are on payroll,
who are getting a paycheck, they're already contributing
to retirement, and once you start working,
you contribute a portion to Social Security,
and Social Security is a retirement benefit
that you also get from the government.
- Okay, so as a young person,
retirement seems super far away—
so why should people my age
even be concerned with retirement?
- The great part about being young is that you have
so much time, and the more time you have,
the more likely you will succeed with saving
for retirement 'cause you can't get that time back,
and that time is so valuable,
and it can change the entire trajectory of your life,
if you understand compounding of interest.
‘Compound interest’ is basically
where your money makes money.
So to give you a quick example that I use
when I teach classes:
Would you rather have a million dollars right now
and hand you a million dollars,
or would you rather have
a penny doubled every day for a month?
- I would say pennies; I feel like long term is better.
- Yep, it's almost $11 million.
- What?
- By waiting one month, yes, it's not a million and a half,
it's not 2, it's 10.7 million,
which if you rounded it up, is very close to 11.
- Oh my gosh.
- And honestly, the sooner you understand
compounding of interest,
the better off you'll be.
- So, what happens to the money
that you put into a retirement account?
How does it magically start increasing?
- So that's the key:
The money that you put into the retirement account,
you need to make sure that you've selected ‘investment.’
It is something that I see people make mistakes on,
they forget to pick the investments.
So you wanna make sure that it doesn't just sit there
in cash because then there's no magic, no magic at all.
- So, what is a good percentage
that I should be putting towards
my retirement each paycheck?
- A good percentage to be
putting towards your retirement
could be 10%, but any amount
that you can do would be great.
So, just getting in the retirement game is key.
To give you an example: So if you wanted to have
a million dollars at retirement at 65, as a 25-year-old,
you just need to save $209 a month, which right,
works out to be like $104 basically every pay period.
Versus if you start at 35,
so if you wait till you're about my age,
I'm a little bit older than that, you need $670 a month—
you're gonna need to save more
for your own retirement because Social Security
is not enough to sustain your lifestyle.
You wanna have more than just Social Security
to have a comfortable lifestyle,
and to be able to enjoy yourself.
Your habits that you determine in your 20s
for your finances—
so saving, retirement, debt reduction—
really impact the rest of the next decades, the 30s.
You just, it's not that you have to sacrifice everything,
you just need to be intentional.
You wanna utilize the time that you have,
and so therefore, I would challenge you to find
any little bit that you can to get started on retirement
'cause you'll never get the time back.
- Thank you so much, Barbara.
This was great to talk to you.
- Yeah absolutely. - And a very
eye-opening experience for myself,
of me needing to start to save for retirement.
- Yeah, never start too young.
- The most important thing about retirement
is you have to prepare for it.
Take a look at the benefits your employer offers,
and what resources they offer.
If you're self-employed, look into starting an IRA.
You can open an IRA at most banks and credit unions,
as well as through online brokers
and investment companies.
And if you have the opportunity or the money,
you can always talk to a financial planner.