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Fund Family Shareholder Association
www.adviseronline.comLOTS OF US TALK
about
taking
an
early retirement, but how about
making
one? In particular, how about making
one (or at least starting one) for a young
family member or friend?
Year after year, when I suggest that
you or your parents should open an IRA
for your teen or grand-teen, I hear from
FFSA members, friends, and even fam-
ily who say, in a nutshell, “Great idea.”
And it is. Helping a young person get
on board the retirement train may not
get you lots of appreciation today, but
trust me, the beneficiary of your for-
ward thinking will thank you for years
to come as they move into adulthood.
I’ve lost track of whether we now
refer to them as Millennials, Gen Ys,
or Echo Boomers, but what I think of
as the Internet generation is a massive
group of teens and 20-somethings who
could always benefit from a swift kick
in the pants when it comes to planning
for retirement.
I know it sounds a bit crazy to talk
to teenagers about retirement and
IRAs. I can hear the howls of derision.
“Retirement? Who are you kidding?”
Most kids are, not surprisingly, more
interested in Instagram and WhatsApp
than they are in retirement. In fact, given
a choice, they’d probably prefer taking
out the garbage or doing the dishes.
But that shouldn’t stop you from try-
ing to pique their interest in the basics
of personal finance, and yes, even per-
sonal financial responsibility. A few
years ago, I helped a number of then-
25-year-old friends of my daughter
with some fundamental financial and
investment planning. They needed it;
they knew they needed it; and they were
very appreciative of the help. In fact,
one of them wrote a blog post about it,
then went on to put her money to work
for her future. I’ve been asked by more
of these 20-somethings to do it again,
and to broaden the audience.
It’s too bad more people don’t help
the young get started early on their
investment careers, because the perfect
time to learn about saving and invest-
ing is when your portfolio is small
enough that your mistakes won’t kill
you. Also, it’s a time when a new
investor can begin to develop lifelong
habits that will stand them in good
stead as they pass through their 30s,
40s and beyond.
Time is on a kid’s side, and by help-
ing one start to build a Roth IRA with
earnings from summer and part-time
jobs, you may be able to make a mean-
ingful impression on him or her. Then,
next March and April, you can tote up
what Mr. or Ms. Millennial earned in
2016 and fund that IRA account before
the April 15 deadline.
I know that it would be nice if junior
spenders could take on this chore them-
selves, but how many teens do you
know who read investment newsletters?
And if they did, where would they get
the money to stash in an IRA? Most
spend what they make, and then some.
That’s one reason I believe the world
invented parents (and grandparents).
When I first opened an IRA for my
then-teenaged son, both he and my wife
looked at me like I’d just announced
my intention to join the Marines. My
daughter just smiled and kept reading
her book.
The joke is on them, of course.
Thanks to me matching my son’s sum-
mer earnings and putting the money
away in a Roth IRA, the now married
31-year-old has already built up a tidy
Real Compounding:
Total Stock Market
12
13
14
15
16
17
18
19
20
21
22
23
24
25
$1,000 per year
$1,500 per year
$2,000 per year
$2,500 per year
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
AGE
Real Compounding:
Wellington
12
13
14
15
16
17
18
19
20
21
22
23
24
25
$1,000 per year
$1,500 per year
$2,000 per year
$2,500 per year
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
AGE
Real Compounding:
Total Bond Market
12
13
14
15
16
17
18
19
20
21
22
23
24
25
$1,000 per year
$1,500 per year
$2,000 per year
$2,500 per year
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
AGE
Roth IRAs Age Well
Age
$1,000
A Year
$2,000
A Year
$3,000
A Year
$4,000
A Year
$5,500
A Year
Gradual
Increase
15
$1,000
$2,000
$3,000
$4,000
$5,500
$1,000
30
$24,673
$49,345
$74,018
$98,690
$135,699
$37,284
60
$225,508
$451,016
$676,524
$902,032
$1,240,295
$612,935
70
$417,822
$835,645
$1,253,467
$1,671,289
$2,298,023
$1,174,517
Assumes a 6% annual rate of return.
ROTHS
Making an Early Retirement