Advice to Young Adults: Start Saving Now

An article in this past weekend’s The New York Times, summarizes a sound—and fairly simple—recommendation by financial advisor William Bernstein on the best way for the young to prepare for retirement. To paraphrase an old saying about voting in Chicago: Save early and often. Mr. Bernstein expands on this in a free e-book called If You Can. Though the book is geared toward those just entering the work force, the idea is applicable to any worker of any age.

For a person to be fully prepared for retirement, Mr. Bernstein says that he or she must start saving a minimum of 15 percent of their income each and every year starting in their 20s. He also recommends that one invest in just three index funds in equal proportions: an international stock fund; a domestic stock fund; and a bond fund. Mr. Bernstein points out another important piece of advice—minimize the fees paid out to financial advisors. For every dollar paid out today lowers one’s portfolio by many multiple dollars at the time of retirement.

The key to all of this is how to get people to save. It is human nature to discount the future, relative to the present. One always thinks they will have time to save at a later date. According to the article, nearly 50 percent of the current workforce doesn’t have enough savings to maintain a pre-retirement standard-of-living. Maybe the incentive to save will be there when the young witness first-hand as the baby-boomers retire in mass and their standard-of-living plummets.

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