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Young money model

your$ magazine Winter 2010Ryan Robarge is planning to retire…someday. He’s just 25 years old, and while retirement is the furthest thing from the mind of most people his age, he’s thinking and planning ahead. “I’m not sure it’s possible, but I’d like to retire by age 55 or 60. That would be ideal.” Ryan is a first-year teacher at Sam Davey Elementary in the Eau Claire School District, and he’s contributing to two retirement savings accounts—a Roth IRA and a 403(b).

The average retirement age in the U.S. hovers around 63, so if Ryan is successful, he’ll be retiring early. The desire to retire at an age when you’re still young enough to enjoy it is shared by the majority of working Americans according to an MSN survey. Unfortunately, many will be disappointed because the Retirement Risk Index indicates that 50% of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65.

The earlier the better
Retiring early requires some early planning. “The reality is that if you want to retire early, you have to save a lot of money,” says Michelle Slawny, a CERTIFIED FINANCIAL PLANNER™ and Senior Retirement Income Consultant at WEA Member Benefits. She works with educators who are preparing to retire.

“Ryan has started his career off by making a really good financial decision,” says Slawny. “His chances of retiring early are greater because he’s taking advantage of his greatest asset—time.”

When it comes to retirement planning, people often underestimate the importance of saving early. Fortunately for Ryan, family members encouraged him to start investing for his future as soon as possible.

“I’m seeing more people who are 5 to 10 years from retirement who are NOT on track to meet their retirement goals. They have their heart set on retiring early, but the fact is they just don’t have enough money saved,” Slawny says.

Getting motivated
Ryan RobargeRyan could be the poster child for what new educators—and young people in general—need to be doing when it comes to retirement savings. But, the fact is that saving for retirement is not a priority for the 20-somethings just starting out in the workforce. “It’s a mind set that needs to change,” says Slawny. The benefits of early saving are many. Of course there’s compounding interest. “It’s a beautiful thing,” says Slawny, “but on a very basic level you are doing two important things when you save for retirement. First, you’re putting money away for your future, and second, you are learning to live on less. Both will help you in retirement.” Most people don’t realize that the typical retirement calculation is based on your ability to live on 80% of your current income.

So far, so good
It’s only been a few months since Ryan started his accounts, but he is comfortable with his new savings habit. “My 403(b) contributions are taken out of my paycheck every two weeks, and the Roth IRA money comes out of my checking account automatically. It’s easy. I don’t even realize it’s gone because it’s never really been there for me to access.”

Like most college graduates, Ryan has student loans, a car payment, and other expenses that make it difficult to think about saving for retirement.

“The economy makes it tough, too,” says Ryan, “but if you put a budget together and really see where and how you spend, you can find $20 or more to put away. It’s so easy to blow $20 or even $100 in a weekend. If you look, you’ll find the money.”

Slawny sees the economic situation as an opportunity for investors of any age, but especially for the young. “This is a great time to start investing because when the market is down, you’re buying shares at a reduced price. Everything is on sale.”

Ryan acknowledges that thinking about retirement 30 years from now is hard. “It’s hard to set money aside for something that’s so far off. Yet, you have to realize that it’s money for your future. I don’t have a lot of extra money to save, but I’m starting small and hope it will grow from there.”

Increasing the contribution is key, says Slawny. “When your discretionary income gets a raise, either from increased salary or reduced expenses—say you pay off a loan—you need to give your savings a raise, too."