Investor’s column: Here are some financial planning strategies for millennials
I am part of an exclusive club that has the media buzzing with quintessential depictions that many are familiar with called the Millennial Generation, defined by the U.S. Census Bureau as someone born between 1982 and 2000. This generation is also known as Generation Y.
After graduating from Manatee High School in 2012, I have seen amazing success in a short amount of time from my peers as they advance their careers and life from the once mischievous teenagers that they used to be. With all of their accomplishments, there is still one area that millennials struggle in: personal finances.
Most millennials think they don’t have enough money to justify seeking financial advice, but nothing could be further from the truth. Not seeking financial advice when you are starting your career can jeopardize a comfortable retirement decades later.
Millennials should understand that financial advice matters most when you are younger because you have time on your side. Relatively small financial steps taken in your 20’s or 30’s can make all the difference when you reach your 60’s or 70’s.
Unfortunately, many financial advisors will not help the young workforce with financial planning unless they have $250,000 or more to invest. That is an impossible level for most millennials to meet as they pay off student loans, save to buy a home and start a family. It is shortsighted for advisors to ignore an entire generation. The notion that millennials should do no financial planning until they have enough money to interest a financial advising firm is bad for both millennials and financial professionals.
Over the next few decades, there will be a transfer of financial assets from the Baby Boom generation to millennials and their slightly older cohorts, Generation X, topping $30 trillion. With that on the horizon, why do so many advisors ignore the planning needs of millennials?
Fortunately, there are some advisors who understand the potential value of millennials and want to help give affordable advice.
The first thing a millennial should do is look for the right type of advisor. There is an old, but true, saying – “follow the money.” It matters how an advisor is compensated.
Fee-only advisors are compensated based on percentage of the assets they manage for you, hourly fees, monthly retainers or sometimes a one-time fee for a financial plan. Fee-only advisors don’t receive commissions for investment products they recommend to you. This fee structure minimizes conflicts of interest that come with recommending investments for which an advisor receives a fee based on sales.
Young workers seeking to invest will also want to find a firm with a Certified Financial Planner (CFP) on staff who has extensive experience working with clients in a financial planning capacity. CFPs have completed a detailed course of study and are held to a rigorous fiduciary standard, putting your needs first.
Millennials are faced with student loan debt, car payments, rent or mortgage payments and need help creating a budget that creates room for long-term investments. A college diploma may be the ticket to a decent job, but colleges don’t teach personal finance skills that are necessary for long-term financial and retirement planning.
How are millennials supposed to figure out how to invest and make the right decisions if he or she isn’t even sure what the 401(k) offered by an employer is or how it works?
Getting sound financial advice early on is critical to building wealth over time. For example, if you are 24 years old, wanting to retire at the age of 65 and contribute the maximum amount each year of $5,500 to a Roth IRA at an assumed 7 percent rate of return, you would have close to $1,300,000 at age 65.
For around $15 of saving each day, you can end up a millionaire in retirement. That is $450 a month; many people spend more on their car payments.
If you pushed the age you start contributing to 30 with the same numbers up above you would have just around $800,000 in retirement, which is a $500,000 difference. That means millennials need financial advice now, not just once they have accumulated enough wealth to make them interesting to traditional investment firms.
Get a hold of your finances now and start building your nest egg so you and your family can focus on making lifetime memories.
Andrew Gipson is a financial advisor for Integra Capital Advisors in Bradenton. He can be reached at 941-778-1900 or andrew@integracapitaladvisors.com.