← WSJ Your Money Briefing
WSJ Your Money Briefing
How Cash-Strapped Millennials Can Save for Retirement
00:08:04
People in their 20s and 30s are finding it harder than previous generations to save for retirement. The Wall Street Journal's Anne Tergesen has tips on how they can boost savings, like putting 10 percent aside for a 401(k).
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- [00:00]
Small Business Owner
Access to affordable credit helps me pay my employees, but I don't really need it.
- [00:05]
Advocate for Durbin Marshall Bill
Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [00:15]
Small Business Owner
See banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [00:20]
Advocate for Durbin Marshall Bill
they need while increasing megastore profits. They deserve it, don't they?
- [00:26]
Electronic Payments Coalition Representative
Tell Congress stop the Durbin Marshall money grab for corporate megastores Paid for by the Electronic Payments Coalition.
- [00:37]
Charlie Turner
With your money briefing. I'm Charlie Turner in New York for the Wall Street Journal. It's never too early to start saving for retirement, but millennials are finding it more difficult than previous generations to prepare for financial success in later years. The Wall Street Journals and Terguson will have some tips on how young people can maximize their savings for retirement. First, some money headlines should we give thanks for the U. S China Trade Dispute? One upside of the trade battle is that it's keeping the cost of Thanksgiving down. The Wall Street Journal's heard on the street says the tariffs that President Trump's administration has placed on Chinese products should end up raising prices in the US But China's retaliatory moves are having the opposite effect. Tariffs on US Agricultural products have damped Chinese demand, boosting supplies of some staples of the Thanksgiving table. Cranberry prices have fallen because farmers are dealing with a supply glut that has pushed price below the cost of production. Tariffs on US Pork have pushed prices so low it has had spillover effects on other products. Tyson Foods has cut its 2019 sales forecast as a result of lower pork and poultry prices. The Labor Department's inflation report on Wednesday showed prices of raw poultry, excluding chicken, mostly Turkey, were down 4.9% from a year earlier. Americans household debt kept climbing in the third quarter, with balances continuing to rise for almost all types of borrowing. That's according to the latest report from the Federal Reserve bank of New York. In the third quarter of this year, total household debt increased for the 17th consecutive quarter to $13.5 trillion, more than 20% above the trough it hit in the second quarter of 2013. Both mortgage originations and non housing debt increased in the third quarter from the prior quarter. Outstanding student loan debt, auto loan balances and credit card balances all rose. The New York Fed report said. Americans are mostly keeping up with their debt payments. Still ahead, How Millennials can Save for retirement this is your money briefing from the Wall Street Journal. Retirement may be a long way off for millennials, but the Wall Street Journal says that Rarely has it been more important or more difficult to build habits that can maximize savings for retirement. What steps should people take in their 20s and 30s to prepare for financial success in their 50s and beyond? The Wall Street Journal's Ann Ter to some financial pros and has some tips for us. First, Ann, you write that millennials are at more of a disadvantage than previous generations when it comes to saving for retirement.
- [03:14]
Ann Tergeson
Yeah, I think the overall point is that millennials are just sort of in a more precarious economic situation overall, thanks to the Great Recession, a lot of them got kind of delayed starts in their professional lives. And so, you know, to some extent, people have had a harder time getting the attractive career track, which has obviously had ramifications for their incomes and their ability to save compared to earlier generations.
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Charlie Turner
So what should young people do? You cite one financial planner who says that there are basically two rules of thumb to get into the habit of saving for the future.
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Ann Tergeson
Yeah, I cite Cheryl Garrett, who's a veteran financial planner. She likes to keep things kind of simple, I mean, I think, which makes sense. And she also says it's important not to frame things in terms of necessarily retirement, which seems so abstract and far away to young people. So it's better to think in terms of long term, short term. And what she says is that you should save 10% for the long term, and you don't necessarily. That doesn't mean the 10% has to come directly out of your pocket. If your employer offers a matching contribution of 3%, that means you should save 7%. And then for the short term, which is sort of another way of saying emergency savings. She recommends that people save an additional 5%.
- [04:34]
Charlie Turner
But I guess the important thing is to start saving right after a person starts working. The earlier the better.
- [04:40]
Ann Tergeson
Yeah, the earlier the better. Obviously, that has to do with compounding. It's easier to kind of reach your goal. The earlier you start, the more years that you save. It's complicated for a lot of millennials because of student debt. They're sort of pulled in two directions. It's like they want to save, but yet they have to pay down debt. And obviously, if you do both, sometimes you don't have enough money left over.
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Charlie Turner
Speaking of student debt, it really is tough to save for retirement or save for anything. If a person is saddled with thousands of dollars or hundreds of thousands of dollars of student debt, so how can he or she free up money for saving in this case?
- [05:13]
Ann Tergeson
Right. So with student debt, there's sort of, especially for federal loans, there's A standard repayment plan, which is a 10 year repayment plan. And you know, the benefit and the value of the standard plan is that you're going to minimize the total amount of interest you pay because you're paying it off over that 10 year period, which for most people turns out to be the shortest time that they pay it off by. But there are ways to reduce the cost, sort of the cash flow impact, and reduce those monthly payments, one of which is to refinance. And the way you refinance is that instead of having like federal loans or private loans, you take out a new private loan at a lower interest rate and that reduces your monthly payment. Now it's possible also to take out a new private loan with a lower interest rate over a longer period of time. And you know, that gets into situations where you have to think in terms of trade offs. But with sort of a strategy like that, you can reduce your student loan monthly payments in order to free up cash, to actually put money into savings. So you can kind of do both rather than having to choose one or the other. If you have federal loans, there's also the issue of there are actually other repayment plans that are available to you. And there's ways to get some loan forgiveness too. I mean, this is kind of a complicated area, so people would be well advised to do their research. I've got more details in the column. There are resources that the Labor Department calculators, ways that you can go and get educated and figure out what your best option is.
- [06:45]
Charlie Turner
And you also say that besides building up an emergency fund that you mentioned, millennials should buy disability insurance.
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Ann Tergeson
Yeah, and this is an area that I think most people overlook. And in fact, I would have completely overlooked this. As somebody who's written about personal finance for years, that wasn't really on my list of things to talk about. But every financial planner I spoke with brought this up and made a big point of. The point here is that when you're young, especially your biggest asset is yourself. So that means that it's important, first of all to invest in education in order to further your future career opportunities, in order to boost your income, it's probably worth it to spend some money to get a higher degree. The second piece of that though, is that if you become disabled, what you have, your biggest asset is severely compromised. You can't earn any money. You're then completely dependent on whoever your parents. So in order to protect that asset yourself, you should buy some disability insurance, which is expensive, but it's something that everybody says is necessary in order to protect yourself.
- [07:51]
Charlie Turner
On the downside, what are some ways to obtain disability insurance?
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Ann Tergeson
It's available in the private market. You can just buy it directly from an insurance company, but it's often far cheaper if you can purchase it through your employer or if you're an independent contractor. Maybe you belong to an association, for example, the freelancers union or a trade association. It might even be worth joining such a trade association in order to get access to a group plan because they tend to be pretty significantly discounted versus what you can buy directly from an insurance company.
- [08:27]
Charlie Turner
Wall Street Journal reporter Ann Tergeson joining us here in our studio. Thanks a lot, Ann.
- [08:31]
Ann Tergeson
You're welcome.
- [08:32]
Charlie Turner
And that's your money briefing. I'm Charlie Turner in New York for the Wall Street Journal.
- [08:37]
Small Business Owner
Access to affordable credit helps me pay my employees, but I don't really need it.
- [08:42]
Advocate for Durbin Marshall Bill
Inflation is killing me, but who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill.
- [08:51]
Small Business Owner
See, banks and credit unions help small businesses make payroll. This bill would cut the vital resources
- [08:56]
Advocate for Durbin Marshall Bill
they need while increasing megastore profits. They deserve it, don't they?
- [09:02]
Electronic Payments Coalition Representative
Tell Congress, stop the Durbin Marshall money grab for corporate megastores paid for by the Electronic Payments Coalition.