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Why It’s Important to Plan for Retirement Even When You’re Starting Out

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When you first graduate college, you’re looking forward toward the next big thing – big career, big relationship, maybe even a big family. But big dreams, like retirement, may be the furthest thing from your mind.

But even though you may be focused on the next big thing, you may still want to plan ahead for the future.

My brother and I are perfect examples of the so-called “boomerang generation.” We both moved back into our parents’ house after graduating with a four-year college degree (luckily our parents hadn’t moved exercise equipment or expanded the living room into our bedrooms yet). I even lived with my grandparents for a year while I was in a training program for my first job out of college.

After graduating from college, I fully expected to find a high-paying job to support myself, but I was sorely disappointed. While I made enough money to put food on the table and buy a reliable car, I didn’t come close to making enough money to actually save and have a sufficient “rainy day” fund or contribute to the IRA that I had started while in college. When my brother was unable to find a job in the communications field, despite having a successful internship during college, he found a straight commission job selling cars at a local dealership.

Our parents were happy to take us in and never charged us for rent or food, but the unexpected cost of supporting two grown children put a strain on their retirement savings. My mother worked four years longer than she originally planned. Since my father had already retired, he began working as a “handyman,” finding small jobs maintaining neighbors’ homes, and he helped a friend start a small business.

Now that my brother and I have moved out of our parents’ home and moved on with our lives, my parents have finally begun to enjoy their retirement. Nevertheless, the boomerang generation has left its mark on both past and future generations.

When you’re planning for your retirement, even if you’re just starting out, it’s so important to plan ahead. You never know what will come up before or during your retirement.

As you’re planning for your retirement, make sure you think about the following:

1. Your retirement will probably cost more than you think

I’m shocked to read literature advising people that they will only need 60-70% of their current living expenses in retirement. With the uncertainty surrounding rising healthcare costs, lack of pensions, changing social security and tax laws, you need to plan for the worst.

In addition, depressions and recessions are cyclical. It’s extremely likely that the stock market will fall between now and the time that the boomerang generation will retire, and you need to account for that when saving.

2. Plan for the unexpected

Past generations didn’t count on their adult children returning home, pensions being taxed, the social security age changing, and health insurance that no longer paid the bills.

The boomerang generation can’t even depend on pensions, social security, or health insurance. With the average lifespan increasing, the boomerang generation also needs to prepare to be a “sandwich generation” that has to care for its parents and children at the same time.

3. Review your finances (including long-term plans like retirement) frequently

When is the last time you reviewed your finances? Are your savings accounts in line with your goals?

Periodically (usually quarterly, but once a year at a minimum), I review my savings and retirement accounts to make sure that they align with my long-term financial goals. Do I have a “rainy day” fund with enough money to cover expenses for three to six months? Am I contributing enough to my retirement savings accounts (IRAs and 401k) to ensure that I’ll have enough to live on for 40 years after I retire?

My parents didn’t plan for their kids to return home after college, and so they had to make some changes to their retirement plan. Even after reviewing their finances regularly, they still needed to make changes. While you can’t plan for everything, an extra cushion (or at least more than 60% of your current income) is a great starting point.

Saving for the worst case scenario is never fun or exciting, but it needs to be done. Take the time to create a nest egg based on your own experiences. As you watch your parents enter into retirement, plan your retirement based on their successes and failures.

While taking the time to enjoy your life is important, make sure you’re taking the time to plan for unexpected expenses so that you can enjoy life in retirement, too.

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