How to catch my 22 y.o.'s attention about ER???

[infoseeker]

Wow, what an ER opportunity for all you young pups out there if you start saving now! As a young person, I was clueless about retirement and didnt start saving until I was in my late 30's!! My 22 y.o. recently asked me if he was putting enough in his TSP. He's been saving since he was 18, so i would think he has a good shot at ER in his 50's if he plays his cards right. He currently has no debt, no dependents, and does not spend much of his income, so, until his financial/life/career situation changes, would it be wise to advise him to contribute the max allowed to his TSA (Is that $16500/year for him?) He knows about the need for retirement funds, but I doubt he has thought about ER. How do I catch his attention about this exciting possiblity of ER? After all, 35 years from now seems like an eternity to a young person. Any good books out there for those in their 20's planning for retirement in their 50's? Thanks. Great forum here!

 

[Texas Proud]

I would not advise someone to put money in a tax deferred account if they were in a low tax bracket unless it is matched... if matched, then contribute up to the amount you need to get 100% of the match..

I would then recommend a ROTH...

I would then recommend a taxable account....


Now, if they are in the high tax bracket... then you can contribute until they get to the lower bracket...

 

[Aiming_4_55]

Welcome to the forum. I think it's great you want to provide some guidance to your 22 yo.

In high school, someone gave me the book "Millionaire Next Door". This helped me think more about how/what to do... once I started making some $$.

Then I got access to Bogleheads Guide to Investing. I've invested passively in index funds for many years, i.e. DCA and compounding returns are my friend, and I live below my means with some periodic rewards for me and my family.

For me it wasn't about ER. It was more of a lifestyle and how I'll get there indirectly.

Disclaimer - I'm not FIRE and still w*rking, but I will be FI around 50 and RE when it feels right, maybe 50, maybe 55, depends if I'm still having fun.

 

[ERD50]

My motivation for ER planning was largely defensive. In the 80's, I saw a bunch of 50-somethings come to our job fair. They were recently laid off from what they thought were lifetime jobs. It was clear they needed a job, I assume they didn't have the savings for ER, or partial ER, but their skills were out of date - no job offers for them. It was sad.

So, if you save for ER, you have options if life throws you a curve. Having options is good. You can think of saving as "buying yourself some power", rather than "buying yourself some stuff".

But balance is needed, we all need some fun stuff in our lives.

-ERD50

 

[haha]

More power to you if your adult children will pay any attention to you on this. When my kids were 16 and 21 they inherited some money from my parents. To the boy who was still at home I suggested he use it to fund a Roth, or to buy some I bonds then offering 3% real. He choose the Roth (they each had plenty earned income to do this). That was the last time I had any influence, though I did make occasional attempts after this. Once later I asked if he felt up to speed on retirement savings and he said yes. My older son once asked me to help him analyze some mortgage choices. I did that, and only later figured out that this request was a back door way to get me to approve his buying a very expensive house which I never would have knowingly done, but I was cleverly manipulated. So I am no match for these guys, that is pretty clear. My learning curve on this lasted several years, and I think we are all more relaxed now that it is complete.

Also, when I honestly look back, if I had spent my 20s and early 30s any differently from the way I did, I would be sorry for the wasted youth. To me, youth is a gift that should not be wasted on trying to save money.

Now, I just want to keep their friendship, so that they look forward to seeing me in a way that I cannot remember looking forward to seeing my Dad, who always had "suggestions" for me. I use the same guideline about forwarding articles. Mostly I don't, as one's children can be very sensitive to hidden instruction.

For the most part, people only like to hear compliments, and that includes one's own children. My popularity in general and with them in particular went way up when I concentrated on noticing the things about a person that are clearly compliment worthy, and then complimenting. Everyone has about 10,000 of these, so it is not hard.

Overall, I find trying to do life well a pretty involving task, but partly that may be because I had a slow start with too many detours.

Ha

 

[Marc1962]

Lots of wisdom there, haha - thanks for sharing.

 

[TromboneAl]

By example. Let him see how much you enjoy ER. Our frugal 22-y-o daughter knows how much we enjoy having so much free time, and I've told her that if I were doing it over, I would probably try to retire even earlier.

Although she says she's not sure she wants to retire early, I know that she will.

 

[RunningBum]

He's asked about his TSP, so he's certainly thinking about retirement. It's also a chance to talk about contributing to a Roth and putting aside money outside of a retirement plan--just as Texas Proud says.

ER is his own decision. I see no reason whatsoever to influence, push, or otherwise call attention to it. As TAl says, your example is enough. Much more important than deciding to ER is creating the means to ER, which is to put away money now, and LBYM. But if he'd rather have a few more toys now and is ok with working til 65 or whatever it will be when he's that age, that's his call.

 

[Alan]

I would not advise someone to put money in a tax deferred account if they were in a low tax bracket unless it is matched... if matched, then contribute up to the amount you need to get 100% of the match..

I would then recommend a ROTH...

I would then recommend a taxable account....


Now, if they are in the high tax bracket... then you can contribute until they get to the lower bracket...

This is exactly the advice I gave to my kids, and on their 18th birthday opened a ROTH for them.

DD doesn't ask for advice and I don't offer any, but she does sometimes mention that her 401k and their ROTH's are doing nicely (she has been married over 9 years and her hubby's company does not even have a 401k on offer).

DS does ask advice occaisionally, for example when he started work he brought home the details for his 401k and I recommended to pay in 6% to get the 3% match and put it into the only balanced fund on offer, and then to contribute to his ROTH as it had better, far less expensive, funds. He also asks for best ways to save for a car etc.

 

[easysurfer]

Here's the "story" to tell the 22 y.o.

YouTube - The Ant and the Grasshopper told by Jack Spirko on The Survival Podcast


sorry Grasshopper

 

[mh]

If (s)he's in a technical field, like software programming such as myself,
once you hit 50 and start reaching the upper end of your pay range
you may very well find yourself laid off and replaced by 2 or 3 three
people in "elbonia" (as scott adams would say).

I realized this early on after seeing some of my father's
compatriots have this happen to them when i was in my mid 20's.
That was motivation enough for me to plan on being
FIRE capable at 50. At Dad's prompting, I started
maxing out my 401k's after doing nothing for a few years before that.

Being 24 or thereabouts, it didn't appear to me that i was going to be
"rich" at 50 via what looked like paltry balances in those earlier years.
On the flip side, I saw that my dad getting was getting there
slowly but surely and I was in pretty much the same field of work
he was in. I think that had a lot to do with me sticking with it.

Now I've hit the mid-century mark and it's looks like i'm just about set.
I think i would have eventually started down FIRE path on my own, but
I'm glad Dad nudged me when he did.

 

[RunningBum]

If (s)he's in a technical field, like software programming such as myself,
once you hit [-]50[/-]49 and start reaching the upper end of your pay range
you may very well find yourself laid off and replaced by [-]2 or 3 three[/-] 4
people in "elbonia" (as scott adams would say).

A couple of corrections, for my case anyway. OK, so those 4 people do have some other work too, but I was only 1/2 time myself.

 

[Midpack]

Best of luck, I wouldn't have listened to you in my 20's much less at 22. But that doesn't mean you shouldn't try!

Edit: After reading the post below, I like that answer a lot better. Best to illustrate all the options associated with FI, (early) retirement is but one, and not high on the list for someone in their 20's. Having the capital to change jobs/careers/locations as desired would be one, having the capital to start your own business is another, having the capital to invest in other income sources like property, etc.

 

[REWahoo]

How do I catch his attention about this exciting possiblity of ER? After all, 35 years from now seems like an eternity to a young person. Any good books out there for those in their 20's planning for retirement in their 50's? Thanks. Great forum here!

I think the concept of retirement - early or any other variety - is difficult for a 22 year old to grasp. As you say, it is too far beyond the horizon to comprehend.

Rather than ER, I think you should focus your efforts on educating him about the benefits of becoming financially independent. Unlike the chicken and the egg question, it is pretty clear you need to reach FI before ER.

Based on what you've said about his financial situation, it sounds like he's off to an excellent start. Encourage him to keep heading in that direction. If he continues to save and invest at an early age, stays out of debt, and lives below his means, he has an excellent shot at having a nest egg which will allow him a great deal of flexibility 35 years from now - including ER if it's what he wants to do.

 

[naggz]

I remember when I was 14 to 15 years old (mid-nineties, I'm 31 now) through conversations with my dad, somehow the topic of compound interest came up.

My dad gave me his copy of "the wealthy barber" to read (I'm Canadian). I never read books, but for some reason I sat down and read it, and I was hooked. I then read "millionaire next door" and other easy to read, not too technical books. By the time I was 16, I was tracking stocks on the internet, and asking for shares for my birthday.

I would recommend offering a non-technical, easy to read book to see if it sparks anything. I'm not sure of any US based books, but 2 great ones for Canadians are the above mentioned "the wealthy barber" and "rich is a state of mind".

Also, I remember not thinking so much about early retirement, but more so the financial freedom.

 

[Eager Beaver]

"The wealthy barber" and "Your money or your life" were instrumental in getting the message through my thick skull

For this 22 year old, planning for FI was hardly a natural extension of my aspirations... but as I neared the end of college I felt I didn't want to run the treadmill any longer or harder than I had to. Then I fortunately stumbled across ER.org, which has since been the source of much inspiration and knowledge.

The great irony, of course, is that you have to be extremely diligent, disciplined and hard working to become a self-sustaining lazy person. I'm sure there is humor to be found in that statement, somehow... I'll let you know if I see it, 25 years from now.

Maybe I'm weird, my GF tells me that my mind has aged twice as fast as the rest of me...

 

[nvestysly]

Try This One Too

The Wealthy Barber and Your Money Or Your Life are certainly good books. I've read both and given both to many people over the years. Another favorite of mine is...

The Richest Man In Babylon by George S. Clason

I prefer the edition found here. There are other editions but the layout/formating/page sequence is lacking compared to the one I've listed.

The Richest Man In Babylon does not address your questions/topics directly but it reinforces the concept paying yourself first, improving your skills in business and in life.... ultimately leading to FI. This book is my all-time favorite - I've given it to dozens of people including local public and school libraries. I'm certainly glad I read it in my early 20's.

 

[Midpack]

It was mentioned above, but I'd recommend The Millionaire Next Door. I would think most 22 year olds would be intrigued by "Millionaire" - and not disappointed after reading either.

 

[MooreBonds]

Rather than offer a book that he may not ever start - or possibly even finish - I'd suggest the strongest, quickest way to indirectly get him to crank up the savings to the max is by giving him a frame to put on his wall, showing him one of those simple graphs that illustrate the financial difference between someone who saves from age 25-35 and stops saving, versus someone who saves from age 35-65, and how the early starter accumulates far more (despite having sacrificed far less) than the person that starts later, yet saves far more.

That way, he can see in a mere 5 seconds the impact of saving more now than waiting to save more later.

After the initial epiphany, then suggest one of the good books (Millionaire Next Door, Wealthy Barber, etc.).

The flip side is that if the graphs/books really spark enough motivation for him to max his 401k and save additional money, he'll be in a 'maximum savings mode' for his 20s, and find it difficult to completely let go and not save at least something in his 30s/40s...by that time, he'll be ever closer to possibly retiring early.

 

[redduck]

It didn't take me very long to see my kids' eyes glaze over as I was trying to get into a converstation with them re: Roth Ira's and the importance of having a bunch of money on hand when it was time for them to retire.

So, it occurred to me, that at their current ages and at my current age, it was much more important to me for them to have an Roth IRA than it was important to them to have a Roth IRA. So, I began to give them money to help fund their retirement accounts--which they did. And, that got them interested (OK, so it took a few years for them to become interested). Now, we talk about investments a few times a year.

And, yes, I still help them fund their retirement accounts. That's because their retirement is still more important to me than to them (but, the gap is closing).

 

[jacob]

I had a bunch of inspirations. Until I was 24 I was pretty clueless about money and figured that all I needed was to go to work like everyone else. What changed my outlook was

1) Realizing how the credit based money system works. I thought it was outrageous that not all money is earned, but that some money is credit that banks create at no cost to themselves. This was from reading the essay "I want the world + 5%".
2) Reading the Cashflow Quadrant by Kiyosaki. I know many people love to hate him. As with everything, it depends on where you're coming from and what you take away. For me, I learned that "You can make a living by making money with your money instead of your time". Prior to this, money was only for spending. To others, this insight is probably trivial, but I used to work for my money and everybody I knew worked for their money. Other options were unknown.
3) Joe Dominguez (Your Money or Your Life) who increased the efficiency of his life-energy expenses enough to become FI at 30.

Following this, most of the money I earned was saved rather than spent. In retrospect, I wish I had learned of this when I got my first job at 12 so I wouldn't have wasted so much of my life buying stuff---mostly electronic toys and gadgets---in pursuit of temporary consumer highs. At least I found out before I dedicated my life to owning the largest house I could afford. That would have been a tragedy for sure.

Can you catch someone's attention? I'm not so sure. I think you can reach someone if they're ready to listen. Keep in mind that most 20something are bombarded with messages about using their credit cards to travel and taking on student loans so they can earn tons of money. Within a decade they will be bombarded with messages about how they should spend all the money they make on mortgage and car payments. Retirement beyond taking the company match will enter their minds much much later. ER will likely only be incidental.

The best I can suggest is "show, don't tell". Most people here should be in a position to do this. One problem about our culture is that finances are taboo. It's perfectly okay to show off your $35,000 sportscar. However, it is not acceptable to talk about your six or seven figure bank account.

Anyway, it's a really interesting problem ...

 

[lrak]

He currently has no debt, no dependents, and does not spend much of his income, so, until his financial/life/career situation changes, would it be wise to advise him to contribute the max allowed to his TSA (Is that $16500/year for him?)

If he does not spend much of his income, I don't see the problem either way. Life is not all about retirement. When I was 22, I bought a house. I only contributed to a Roth IRA and just enough to get the 401k match in my early 20s. However, having a 4br house paid off before having kids has allowed my wife to stay home with them and still save for retirement. If I hadn't spent that money on a house in my 20s, we wouldn't be able to max out two Roth IRAs, one Roth 401k, and put some aside in 529 plans on one income through our 30s.

 

[haha]

The best I can suggest is "show, don't tell". Most people here should be in a position to do this.

I think that is easier to do if your kids need money, or if they see you as being exceptionally successful. In my case at least, an early but frugal retirement does not light up many lights for them. I think they believe that my concentration on an early but frugal out was a mistake.

Their models are people who through their own efforts become very wealthy, not some guy with 1.x to 5.x million and no current economic or social power.

"I used to be a contendah" is a sad and perhaps pitiful emotion to many young men and women. It wasn't to me. I remember an old man who had a run down farm, with a good sized pond surrounded by wheat fields. We used to go there and shoot doves in the late summer, then chat and share a nip from a bottle we brought for the guy, while we dressed the birds. I though his life was about perfect, though now I see that it was likely lonesome. I can't remember if he was married, or perhaps his wife had died. We always sat outside on the cistern slab.

Ha

 

[popowich]

Wow, what an ER opportunity for all you young pups out there if you start saving now!

2 years ago, but still... Yes, I've been working on my younger brother and got him to make one Roth IRA contribution. Same deal for my sig other, she is making her first this year. Better late than never. Why not show them what you have saved and how much more money invested money generates?

 

[Jay_Gatsby]

Their models are people who through their own efforts become very wealthy, not some guy with 1.x to 5.x million and no current economic or social power.

This is part of the problem. The media has a tendency to show the 1 in 100,000 (or 1 in 1,000,000) person who made it big. It also shows that person's lifestyle as it is today, not how it was 10+ years earlier. If today's youth could see how the celebrities they worship started out (struggling waiter/waitress, bartender, bouncer, janitor, construction worker, etc...) they would be far less inclined to believe that they'll achieve the same remarkable success. There are far more "millionaires next door" than there are celebrity millionaires. The former just keep a lower profile because being famous isn't necessary for them to earn a living.