Retirement for Generations X and Y

My husband and I have begun the process of penning our long-term goals to paper, beginning with our retirement goals. Up until this point we've merely maintained the ambiguous goals of "we want to retire comfortably and early if possible," but our hope is that actually committing to numbers on paper will aid us in staying on track.

To start the process, I began looking for general retirement planning advice for those in their 20s and 30s, as we are both 26. While there is a wealth of general information on utilizing 401(k)s, IRAs and other investment tools, I noticed that a majority of retirement articles seem primarily written for baby boomers. Certainly this is understandable since retirement is a more pressing and current issue for baby boomers, especially since many are in the difficult position of needing to make "catch-up" contributions because they have yet to accumulate enough in their nest eggs.

The problem, of course, is that if the baby boomers in general had started sooner, they would likely be in a much more secure financial position today-which is why I think there should be more emphasis on targeting the younger generations. With generations X and Y being unable to rely on social security or employer pensions to supplement their retirement, it is more crucial than ever to get an early start. Yet most articles that I see targeted towards those in their 20s and 30s mainly discuss debt reduction.

Seeking Balance

Certainly, the amount of debt that Americans are accumulating is of vast concern and it is necessary to educate the younger generations of the importance of paying off debt (or not accumulating it in the first place), but this should not be at the expense of not emphasizing the need and benefit of starting retirement saving early.

As an example of balancing debt reduction against retirement planning, my husband and I have decided to make saving for retirement a high priority despite the fact that we are saddled with a combined total of about $125,000 in student loan debt (this is after recently using our home sale proceeds to pay off about $34,000 of private student loan debt most of which was at a whopping 9.27% variable interest rate.

While this is a staggering amount of student loan debt that really distorts our networth, we are fortunate that it is all consolidated at very low interest rates-rates that are significantly lower than our mortgages rates and even lower than the interest rates that many savings accounts are paying. Thus, we are not in a hurry to pay these loans off and feel that over the long run we will be financially better off if we add more to our retirement savings rather than paying off this low-cost debt earlier.

What unique trends and issues might 20 and 30 somethings face?

For those of us who have already recognized the need to start saving early and have begun the planning process, I would like to see more discussion of unique trends and issues that 20- and 30- somethings may need to consider as part of their retirement planning.

Here are a few of the articles that I round in my search for retirement planning advice columns for those in their 20s and 30s:

SmartMoney: What Will Retirement Be Like for Gens X and Y?

Yahoo! Finance (Bankrate.com): How the Young Can Get Rich

MSNBC: Retirement Savings on Rise But Health an Issue

Motley Fool: 5 Retirement Must-Knows

CNN Money: Money 101: Planning for Retirement

Bankrate.com: Retirement Planning for 20-somethings

Second Careers

The last few still mainly discuss the basics-start early, budget, think long-term, utilize 401(k)s and IRAs, etc., but the SmartMoney and Yahoo! Articles discuss some trends that may impact retirement planning that I thought were interesting. First, SmartMoney discusses the possibility of second-careering. The theory is that as life-spans continue to lengthen, people will wait longer to retire and will be likely to enter into a "second" career. One interviewee even went so far as to speculate that it might become commonplace to take a mid-life sabbatical to seek retraining for a second career or simply retraining to keep up with technological advances. This got me to wondering about what sort of impact second-careering would have on retirement planning.

On the one-hand, waiting longer to retire can be beneficial because it gives a longer amount of time to add to your nest-egg and postpones the time at which you begin withdrawing from your nest-egg. However, the cost of education has been increasing at a startling pace. Considering that I accumulated about $100,000 in student loan debt from three years of law school alone, I can only imagine what this figure might look like in another 25 to 30 years. Thus, it seems that depending on the amount of education required, re-training for a new career in your 50s could put a serious dip in your savings progression and even seems to suggest a greater need to save more aggressively in your younger years so that you will be financially stable enough to afford the educational expenses of a re-training without causing substantial harm to your nest-egg.

Similar to re-training for a second career, another theory is that more workers will enter into entrepreneurship as their second career. While entrepreneurship might not come with an exorbitant educational price tag attached, there are still start-up costs to consider. In addition, entrepreneurship typically brings income fluctuations, especially in the early years as the business may struggle a bit to get on its feet. Such ventures and potential income instability may need to be factored into one's long-term planning.

Early Retirement

Also, early-retirement seems to be an important issue. That is, forced early retirement. Yes, it would be great if you were a savvy and diligent saver and found yourself at age 50 with a substantial nest-egg allowing you to enter retirement early, but how would your retirement plan be impacted if you were involuntarily forced into retirement? The Yahoo! Article points out that a recent study by AXA Equitable found that about 30% of workers were forced into early retirement due to illness, disability, layoffs or other factors beyond their control Thirty-percent sounds like a pretty high segment of the population, indicating that early-retirement is a contingency that must be given consideration in the retirement process-especially if life-spans continue to lengthen.

Getting Stretched Thin

Next, as the MSNBC article discusses, Generation X is more likely to become sandwiched-not only do they have to grapple with family planning and their own retirement, but many may find themselves in the position of providing financial support to their baby-boomer parents. Again, this puts greater emphasis on the need to bulk up retirement savings as early as possible in case children and parents impact your finances down the road.

Finally, something that has gotten a bit more press recently, is the financial strain that is being placed on the middle class. While earnings for college graduates have remained about the same over the past couple of decades (when adjusted for inflation), the costs of housing, education and healthcare have been rising at a much faster pace. Thus, the sting of keeping up with daily expenses makes saving for retirement all the more difficult and there doesn't appear to be relief in the immediate future.

Conclusion?

No one has a crystal ball, so it's important to plan for contingencies and the younger generations are likely to face some interesting contigencies along the way. Don't just aim for an "average" or "acceptable" retirement plan, but instead set high goals early on and try to save as much as possible. This way, if any of these contingencies do become factors, you'll be in a better position than if you had only been saving the bare minimum.