Retirement savings

Retirement savings plans are increasingly used to supplement Social Security pensions. The 401(k) is the most common retirement savings plan offered by employers. What will happen to the future retirement income of young employees if their Social Security benefits are reduced or their employers suspend 401(k) matching contributions? The employee will then have to make up the savings deficit. It would help if they have their own long-term investing plan for retirement.

Imagine an investment in stocks that grows by multiples of 3, 30, and 90 times the original value during successive time periods of 18, 50 and 67 years. Helping a child make such an investment would help them retire in comfort IF that child learns how to manage the investment throughout adulthood. Homeschooling will help determine how well the youngster ultimately manages the investment.

Many of today’s retirees worry about a shortfall of lifetime savings. Children could avoid this future worry by starting a long-term investment in stocks that accumulates more than two million dollars.  Today’s formula is simple: Start early to make regular deposits in a Roth IRA that invests in a broad-market, stock-index fund. Then build the fund with payroll deductions.

Why aren’t there more millionaire retirees? Because of obstacles along the way; college, debt, taxes, and low income to name a few. Dedication and planning are needed to circumvent the obstacles. And here’s an idea for low income families: Help your child open a custodial savings account to accumulate sufficient funds for starting an investment account. Irrespective of family income, parenting skills can instill motivation, participation, and the investment habit in a growing child.

References

  1. Retirement plans for children: https://www.investopedia.com/articles/retirement/06/retirementforminors.asp
  2. Roth IRA for Kids: http://www.irakids.com
  3. Facts about retirement savings plans: http://www.pensionrights.org/factsheet-topic-areas/retirement-savings-plans
  4. IRS retirement plans: https://www.irs.gov/retirement-plans

Copyright © 2018 Douglas R. Knight

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