An Open Letter To Recent College Graduates: Introducing A New Holiday
Dear College Graduates,
Congratulations on starting your recent graduation and (hopefully) embarking on a new career. You've worked hard to pursue your dreams of higher education poised to enter the workforce full of knowledge. If eligible, you will likely be asked by your new employer a question in the near future that will change your life. How much do you want to contribute to your retirement account? If you've never celebrated 401(k) Day®, let this be the first year of many that you remember to invest in your future self.
Why Do You Want To Read This Blog?
If your parent, grandparent, sibling, or friend shared this post with you, that should be a good enough reason to read it. But whether you found this on your own or an older generation handed it down, you are about to experience a virtual treasure map; this is the first clue. What you do with it is up to you.
Have you ever read a "Choose Your Own Adventure" book? These stories allow the young readers to make decisions that affect the outcome of the fantasy novel. Whether you know it or not, you are experiencing a real-life "Choose Your Own Adventure." You already chose your college, your major, and applied for your chosen career. However, you may not know that deciding how much to contribute to your 401(k) will determine what happens 40 years from now.
What Is 401(k) Day®?
It may be new to you, 401(k) Day® is actually celebrating its 25th birthday this year. In 1996, the Profit Sharing Council of America (PSCA) designed a holiday to promote education about retirement savings. PSCA selected this day in September for employees to "start the week with Labor Day and end the week with Retirement."
Every year, the PSCA provides free resources for companies to educate their employees. This year's campaign features three bingo cards, each centered on one of the three "Rs" Refocus, Revive, and Reset. The game's focus is on financial planning topics, including making a budget, paying off debt, establishing credit, and of course, saving in your 401(k) or another workplace retirement plan.
"After such a challenging year and a half focusing on the pandemic, we thought it would be helpful to provide resources to help employees take care of their finances," said Tobi Davis, PSCA's director of operations. "By leveraging tools PSCA has developed over the years, plus new tools and resources, we created a campaign that is entertaining and educational to help employees evaluate their finances and their retirement savings." In addition to the bingo games, the PSCA website offers downloadable guidebooks for participants, flyers, posters, email/internet banners, and badges. Most materials are also available in a 403(b) version.
The 10-Year Difference
According to a recent National Association of Colleges and Employers (NACE) salary survey, the average salary for college graduates is about $50,000. Assuming you are 22 years old and making $50,000 per year or $4,167 per month, let's start your path to financial success. First, tell me, what age do you want to retire? If you are a member of Generation Z, the generation born between 1997-2012, you likely plan to retire before age 65. A recent Vanguard survey reported that two out of three (67%) of your peers plan to retire by age 65 and one out of three (31%) plan to retire before age 60. For planning purposes, let's use the assumption that you want to retire at age 60, you have $0 saved so far, and you want to be able to spend $50,000 per year in retirement, or 100% of your current salary.
How much do you want to save every month? Let's say you are saving 10% of your current salary into your 401(k), and your employer adds another 3% matching contribution, so your total monthly savings is about $542. With those assumptions, you will be close to your goal by age 60. Given average market conditions, you will likely have $1,641,960 available to enjoy your retirement.
If your employer matched 4%, bringing your total contributions to $583 per month, your plan would be fully funded by age 60.
But what if you wait ten years to start saving? Given the same assumptions, you will only be on track to fund 55% of your goal. If you wait to start saving, you will need to save more per month, reduce your retirement living expense expectation, or retire later.
Click here if you want to test drive this calculator for yourself and see when you will be ready to retire. It is one of the many tools available on the CFO Center provided by the Hurlow Wealth Management Group.
Planning for retirement does not have to feel like an overwhelming process. It can actually be fun. The team at Hurlow Wealth Management is here to help. For nearly three decades, we have helped clients find clarity, feel confident, and achieve comfort in retirement. Typically clients decide to work with our financial advisors when they are 10-20 years away from retirement, but it's never too soon to start the conversation. Click here if you would like a free introduction.