Today, no age is too young to start planning for retirement. Starting early can teach your children valuable lessons about the importance of securing their long-term future. Encouraging saving habits at an early age can also ensure a lifetime of financial security when the future isn’t always reliable.
Here are a few reasons why your children should start saving for their retirement now:
1. Social Security Doesn’t Cut It Anymore
Adults from the Baby Boomer generation grew up partially relying on Social Security benefits to take care of them when they couldn’t work anymore, but after the housing market crashed, Wall Street suffered a significant blow and the economy suffered a recession, Social Security is not so secure anymore.
If you’re worried about how Social Security will affect your life, think about how your children’s lives will be affected. They may earn little to no Social Security for when they retire. This is why they need to plan for another source of income. To truly ensure a financially stable future, your children should start saving for their retirement as soon as possible.
2. Build Good Savings Habits
Teaching your children about saving for their long-term future now can help them learn good savings habits that can be used for the rest of their lives. By doing so, they will learn the difference between needs and wants, that needs should come first and sometimes it takes a lot of work and patience to get what you want.
The ultimate goal here is not only to teach your children to save for retirement, but also to teach them vital lessons about money, so that saving becomes second nature. The more they save, the less you have to worry.
3. Make the Most of Tax-Free Investments
There are a number of investment options, such as trust funds and annuities, that can grow tax-deferred until your children reach retirement age and can access these funds as a reliable source of retirement income.
Annuities, like trust funds, are intended to provide a source of income for the future. They are investment vehicles with a contract between you and an insurance company. In return for an initial investment, in one lump sum or in payments over time, the insurance company repays you in regular disbursements that include any interest earned over the years.
Although children younger than 18 cannot legally sign a contract or own an investment such as an annuity, there is an option for you to purchase an annuity for them and then give it to them when they become of legal age.
The money you invest today will grow tax deferred, and once the funds transfer to your children, they can continue to contribute tax-deferred payments to their investment. There is no contribution limit for annuities, which means the sooner you and your children contribute, the more money that earns interest and the better savings your children may have for retirement.
If along the way your children experience a significant life event, such as buying a home or going to college, and they need to access their funds before retirement, they can withdraw money early or even sell their annuity in whole or in part. However, these options may include charges and fees.
4. Interest Grows Over Time
There may not be a money tree growing in your backyard, but there are ways to make your money grow. The earlier your children set aside money in a retirement account, such as an annuity or trust fund, the more time interest has to accumulate and the more your children’s savings can grow.
Delay in Saving Raises Future Payments. If your children start saving for retirement now, they can make smaller regular payments to reach their savings goal. If they wait until they’re 45 to save half a million dollars for retirement, they will have to pay much larger monthly amounts to achieve that goal than if they started when they were 16.
5. Delay in Saving Raises Future Payments.
If your children start saving for retirement now, they can make smaller regular payments to reach their savings goal. If they wait until they’re 45 to save half a million dollars for retirement, they will have to pay much larger monthly amounts to achieve that goal than if they started when they were 16.
It’s simple. The younger your children start saving for their retirement, the better. The only way to guarantee a financially stable future is by taking control of your money as early as possible. By helping your children understand basic saving skills, you are helping them reach a financially secure retirement.
Kaitlyn Fusco is a content writer for Debt.org. She combines her interests in writing and overcoming debt to inform the public about issues related to credit, debt, annuity and personal finance.