For younger workers, retirement is a long way off. A recent survey by TD Ameritrade shows that 48% of Millennial respondents who are in the workforce aren’t saving for retirement. Another 33% started saving, but have stopped. It’s tempting to look at that data and be concerned, but there might be something deeper happening. Maybe the language of retirement just doesn’t work for today’s young worker.
For more and more young people, financial stability is replacing retirement planning as the savvy way to think about saving for the future. A lot of the same tools work for both options. The biggest difference is that you don’t have to be nearing retirement age to be financially secure.
What is financial security?
Financial security is having enough passive income to cover your expenses for the rest of your life. For example, if you have rental property, dividend income, savings account interest and a turnkey business that provide enough money to live on, you’ve achieved financial security. As you age, more of your income is provided by these opportunities, leaving you with more time to pursue your passions.
Financial security is having the means to quit a job you may not enjoy. It’s the freedom to move somewhere because you want to live there rather than because you’re following a job. It’s being able to take a month off to work on a novel or volunteer. It means you can take care of an ailing parent or take vacations on your own schedule.
It’s not quite retirement. The assumption of financial security is that you’re still making money somehow, whether in residual income from work you’ve already done or from small business opportunities you work to maintain. It does look very similar to traditional retirement, though.
How do I get there?
Most of the advice that applies to retirement savings applies to saving for financial security. Putting away 50% or more of your income into savings vehicles and investments is a good place to start. Avoiding debt for consumer purchases or lifestyle maintenance is another sound move.
The real difference comes in timing. With traditional retirement planning, you invest more as you get closer to retirement. The goal is to accumulate enough savings to live on for a decade or two when your expenses are at their highest, so you need to contribute more during your peak earning years. Typically, these come just before you retire. You’re an experienced veteran in your field and your salary is usually at its highest just before retirement.
When your goal is financial security, the timetable reverses. In the beginning, more of your wages need to go toward investments. As they start to bring in returns, more of your income becomes disposable. Because your savings aren’t locked up in a designated retirement account, you’re free to use them to pursue non-work money-making strategies.
One other opportunity for investment opens up when your goal is financial security: investing in yourself. Learning a new skill can open up new opportunities or help you save money by in-sourcing an existing task. If you’re paying a web designer, learning to code yourself can save you the money you’re spending on building and open up new opportunities to expand your business.
Where can I go for assistance?
There are many resources available to guide you on your path to financial security, including Allegacy Investment Group, available through CUSO Financial Services, LP (CFS) *. Our CFS advisors can help you determine what financial security looks like to you and help you map out a plan to get there.
*Non-deposit investment products and services are offered through CUSO Financial Services, LP (CFS), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union and may involve investment risk including possible losses of principal. Investment Representatives are registered through CFS. Allegacy Federal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.