Millennials urged to save early, often to meet financial goals
Financial planner Bryan Hoover doesn't get many clients his age.
Hoover is part of the millennial generation, people in their 20s and 30s for whom saving for their “golden years” is barely imaginable as they begin their careers.
“It's hard to view retirement as something that's reasonable to plan for because it's 30 and 40 years away,” said Hoover, 31, of Downtown-based Fragasso Financial Advisors. “Folks in that age bracket are dealing with a combination of debt, through student loans or a mortgage. They're dealing with young children. All these combine to make people question whether it's reasonable to save.”
Yet it is perhaps never more important for a person to write a financial road map for their future than when they are young, advisers say. The earlier their dollars are invested, the greater their returns will be over time. Plus, there is some concern that the social safety nets supporting previous generations won't be around for them in retirement.
Developing a financial plan that spans four decades might seem daunting, but it all begins with setting a few basic goals, Hoover said. And it's not just about retirement. When do you want to buy a house? When do you want to pay off student loans and outstanding credit card debt? Is there a big vacation you'd like to take? Do you intend to have kids, and if so, will you pay for their college education?
Then when those goals are set, you can figure out the details of how to achieve them.
One of Seth Dresbold's goals was to buy a house by the time he turned 30, which he accomplished after having purchased a home last year in Shadyside.
But the 31-year-old Dresbold had to make some tough choices with his financial plan to get there.
“I came out (of college) with a good amount of student debt,” said Dresbold, a partner at Signature Financial Planning in Mt. Washington. “It became pretty apparent right away that I needed to figure out my expenses and the best way to pay it down.”
Student loan debt is something that many millennials struggle with. Dresbold said wanted to pay off his student loans as fast as he could, but that wasn't the most financially prudent approach, he said. He needed to build his cash reserves first.
Dresbold needed a cushion of savings to cover unexpected emergency costs, should they arise, lest he rely on credit cards with double digit interest rates to cover those expenses and dig himself a deeper hole.
Paying down debt is important, but young people must first address their immediate financial needs, said Victoria Rogers, a financial planner at Schneider Downs Wealth Management Advisors, Downtown.
Many young people start their careers without any savings. She tells them to create a budget and set aside a little each month, even if it's only $10, until they build a reserve that is at least 5 percent of their annual salary.
“It's a real balancing act, but you need that emergency fund first,” she said. “You need to get something saved that's not going to retirement or bills.”
Rogers has a millennial-aged daughter who has eight accounts into which she divides her paycheck. Each is tied to a separate financial priority — emergency savings, car expenses, traveling, home improvement, etc.
Beyond saving whatever they can, millennials also need to be sure they don't leave money on the table, Hoover said.
Take advantage of any employer match for 401(k) retirement plan contributions. Look for tax deductible opportunities with student loans and mortgage payments. And make sure they're not withholding too much of their paychecks for taxes.
It might be nice to get that big refund every April, but it essentially gives the government an interest-free loan when the person could have invested that money in ways that would yield returns, Hoover said.
Finally, once the plan is written, don't file it away and forget about it, advisers say. Revisit it regularly, perhaps once a year. Life changes. So should their financial plan.
“It's a living, breathing document,” Hoover said.
Chris Fleisher is a Tribune-Review staff writer. Reach him at 412-320-7854 or firstname.lastname@example.org.