TIPS For Families

“Plant the Seeds” for Retirement Savings

Written by: Mary Ann Holland
University of Nebraska-Lincoln Extension

            Teaching children ‘how to’ is what parents do every day.  Whether that means learning to tie your shoes, or bake a cake, or doing your own laundry, parents lead by example.  Saving for retirement, or managing one’s resources wisely, is an important way parents can model behavior for their children, and help prepare them to be financially responsible in the future.

            Planting the ‘savings’ seed in our children’s lives is not an unusual practice; most parents encourage their children from an early age to save money whether in a piggy bank, a savings account or perhaps the purchase of a savings bond.  The child learns money ‘grows’ with time or accumulates ‘interest’ on their investment. 

            Parents today will want to teach children that saving for their own retirement is necessary.  This ‘goal setting’ emphasizes the child’s responsibility for the standard of living they hope to achieve decades in the future. 

            Today the retirement picture for many older Americans is uncertain at best.  Especially vulnerable are women who chose to leave the labor force during childrearing, those who held part-time or low-paying jobs, or those who were supported by spousal income rather than earned income.  Women who have not contributed to retirement accounts or pension plans have been identified by economists as the next generation of elderly poor.  With thousands from the Baby Boomer generation reaching full retirement age as early as this year, the need for after-retirement income for individuals is expected to increase.

            For many years, employers whether industry or schools or local governments, have offered employee retirement plans to their workforce; some employers have made contributions to individual employee accounts as part of employee benefits packages.  The burden of financing after-retirement income is now shifting to the individual.

Workers in the future will be expected to plan for and manage their own retirement income.  Fewer and fewer workers will have the benefit of an employer-match to their own contributions in a pension plan. 

Social Security was never meant to be the only source of income for people when they retire.  Social Security replaces about 40 percent of an average wage earner’s income after retiring and most retirees will need nearly 80 percent of their work income to live comfortably in retirement.  Sadly, Social Security is the sole source of income for many older citizens.

            How can parents make a difference for their children’s future financial well being?  They can model savings-for-retirement behavior.  Establish a Traditional or Roth IRA [individual retirement account].  Anyone can set up an IRA if they are: 1) under the age of 70 ½; and 2) have earned income, or their spouse has earned income.  IRA’s are available at banks or other financial institutions, contributions are limited to $4,000 in 2007, up to $5,000 in 2008.  Even small amounts contributed to retirement savings add up over a long period of time. 

            Include children in discussions about family finances and preparing for retirement.  Bring periodic updates such as a ‘statement of earnings’ from the financial institution to the family discussion so that children can observe ‘growth’ of the investment.  Discuss with children the concept that most adults have living expenses beyond the years they will earn a paycheck.  You many want to obtain information from area banks about savings options including IRA’s, money markets, certificates of deposit, etc. or visit Social Security’s website for information at http://www.socialsecurity.gov/ .

As children grow older and have part-time jobs, assist by helping them set up financial accounts of their own.  At the time your young adult enters the work force, talk with them about the necessity of establishing financial goals for their future, including the need to finance their own retirement income.  By starting their retirement account at a young age, the potential for financial growth can be spread out over several decades ‘growing’ their investment to a sizeable sum.  Planting the seeds of retirement savings today, will reap future financial benefits.

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