When I started my first full-time job after college, the last thing I cared about was what kind of retirement benefits I was offered. This was from a combination of typical youthful self-absorption and a vague sense that through pensions (which my father had) and Social Security, things would just work out.
My parents never talked to me about planning for retirement, and until recently, it had never occurred to my husband and me to speak with our sons, now 18 and 21, about saving for their retirement.
That is fairly common but not necessarily wise. We all know saving early means saving more, but the trick is how to discuss that without boring or panicking your children.
Many of them want to know more. “I have definitely seen an uptick in younger people asking, ‘How much do I need to save?’ and ‘Where should I invest?’” said Walter Updegrave, editor of RealDealRetirement.com, who has been answering retirement questions online for 15 years.
Here are some strategies to give your children a head start:
If they are young, talk to them about money and savings in a way they will understand and find fun. Ten years ago, Jennifer Carole, a single mother in Santa Cruz, California, decided to buy stocks for her daughter (7 at the time) and her daughter’s three friends, letting them choose companies they recognized, like Target, Kraft and Heinz.
That was just part of an overall strategy to ensure that her daughter, Katie, understood choices: that buying a fancier car, for example, meant less money put aside for college or retirement.
“My mom lives around the corner, and she knows Grandma can’t do a lot because she’s on a fixed income,” said Carole, a marketing consultant, in reference to her daughter. “She doesn’t want to have the financial responsibility I have for my mother.”
Katie Carole said that she plans to start putting small amounts aside for retirement right after college.
“It’s been a huge influence seeing how my mother handles money and how my grandmother did it differently,” she said. “I’ve seen my mom save strategically and invest, and she is so much more secure.”
Joe Saul-Sehy, a financial planner and a host of the podcast “Stacking Benjamins,” who has 21-year-old twins, said that he included his children in weekly family meetings about money, and that the meetings “grew organically into ‘Why would you save into a 401(k)/IRA?’”
As soon as your children start earning taxed income through summer or after-school jobs, you can open a Roth IRA for them. Roth investments use after-tax dollars, not pretax dollars, as traditional IRAs do, so they are perfect for people who do not need to worry about offsetting their taxes, said Mari Adam, a financial planner with Adam Financial Associates.
Those who are 50 or younger can put in an annual maximum of $5,500 in a Roth, but in most cases, there is no minimum needed to open one, and money can be withdrawn at any time without a penalty.
And a way to sweeten the pot is to offer a parental match.
“My son, Mac, is just turning 16, and that’s how I plan to approach it,” said Art Lundgren, a financial planner with Garrett Investment Advisors in Minneapolis. “I’ll say, ‘You put in half, and I’ll put in half.’”
I will strongly suggest to my sons that they open an account, as they can do it with last year’s earnings before April 15.
Using visual aids to explain some basics of savings can be great tools. Study after study shows that many adults do not understand what compound interest is and why it is so important. There are numerous fun examples online even for younger children, such as a YouTube video that uses colored yarn and a ruler to show the difference between sticking $100 under a mattress every month for years and investing it at 6 percent interest.
Since children typically think their parents know less than nothing, one option, if you have a financial planner, is to outsource and set up an appointment for your children after they graduate from high school or college.
Bonni and Mitchell Tandet of Hillsboro Beach, Florida, have used Adam as their financial adviser for years, so when their daughters started having financial questions, they sent them to her.
“We feel that’s the best gift,” said Tandet, a retired dental hygienist whose daughters are now 28 and 31. “And now that one daughter is engaged to be married, when she and her fiancé were visiting from Boston, they met with Mari.”
Carole agreed, saying she suggested that Katie meet with her financial planner when she started driving, since “more money would be leaving the house faster.”
One of the most important tips comes from Updegrave of RealDealRetirement.com: Drill into your children that the more that retirement savings can be put on autopilot through automatic paycheck deductions, the better. He suggested 10 to 15 percent be put into such savings every payday. “That’s a reasonable target,” he said. “But if you can’t do that, start with a lower amount and add a percentage point each year, or a quarter of your raise.”
He also urged parents not to make investing sound overly difficult or something only an expert could do.
“The financial services message about investing is, ‘It’s complicated, but we’re here to help,’” he said. “It’s not that complicated.”
And take it easy. Talk to your children, but “be careful not to overdo it,” Updegrave said. “It’s nice to bring stuff up, but you don’t want your teenagers to drift away every time you come up, thinking, ‘Here’s a lecture from the geezer.’”