Thinking About Retirement In Your 20s!
By Beverly DeVeny, IRA Technical Expert
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My grandson turned 21 this year and recently got his first full-time job. I happened to be there when he came home with all of his benefits forms. The first item he dealt with was his health insurance. He asked his mother if he had to go on his own health insurance to which she responded, “Unfortunately, yes.” This was met with by a groan on his part. He skipped over vacation and sick days pretty quickly figuring these were not items he was going to worry about yet.
He then moved on to the 401(k). He and his mother discussed the investment options available in the plan and what would probably work best for him. There was no question of whether or not he should participate. For him, it was a given. I’m thankful that he has that mindset.
Then, it was on to the beneficiary form for the 401(k). His mother passed him over to me for that discussion. The obvious options for a single 21-year-old are his parents and his siblings. In fact, many young people name their parents as their first beneficiaries on their retirement plans. This is a logical choice for a variety of reasons. Just don’t forget to update the beneficiary form after life changes such as marriage or the death of a parent.
I told my grandson that he should be sure to name a primary and contingent beneficiary for his 401(k). Presumably his parents would be the primary and logically his siblings would be his contingent beneficiaries. But there is a problem with those contingent beneficiaries. His siblings are minors. They cannot sign account-opening documents, they cannot manage the investments, they cannot request RMDs (required minimum distributions) – although they think they can (they are after all, teenagers). His best option is to name someone who would be caring for his siblings if both parents were deceased. In his case, this makes sense because there will not be that much money in the account before his siblings reach the age of majority. Again, don’t forget to update the beneficiary form when this happens.
Saving for retirement is critical for today’s “milennials.” They will most likely not have any pensions to fall back on and may not have Social Security, even though they are currently paying into that program. Participation in their employer-based retirement plans is crucial. Beneficiary forms are an important part of retirement planning, no matter what your age. Make sure there is a primary and a contingent beneficiary on all beneficiary forms – retirement plans, other employer benefits, annuities, or life insurance.
When saving for retirement, it is essential to understand your options, discuss a strategy with a competent financial advisor and implement it to ensure you can take advantage of time’s compound power. To better understand how to save for retirement in your 20s and 30s, read Ed’s book, Fund Your Future.