As head of BlackRock’s defined contribution team, I am well aware of the advice we give to young people just starting out in the work force. That advice is start saving for retirement. Now. Time is your biggest asset. You have a lifetime of future wages ahead of you and decades to put the markets to work on building your future security.
But as a mother of a young adult, I understand how difficult it can be to get started. My son is a musician and is working very hard at developing his career. As do many other artistically talented young people, he also has a day job. And that day job has a retirement plan. Since he knows what I do for a living, he asked me what he should do. That’s when I realized that the simple—and reasonable—advice to start saving is not always so simple.
He is on a tight budget and it is not easy to find money to spare for something forty years in the future. And it’s not just aspiring artists who face the challenge of finding money to save. We know that many people just starting their careers feel the squeeze of student loan debt, high housing costs and, in some cases, the fact that entry level wages have not risen significantly over the last few years.
So let me combine my professional perspective with my perspective as a mom on getting started with retirement savings:
Don’t think about it…if your plan has automatic enrollment
The “if” is very important: If your plan has automatic enrollment, consider yourself lucky. If some portion of your very first paycheck is automatically diverted into your savings plan, you won’t miss what you never had. Later on, as your balance builds and your career gains traction, that’s the time to think about increasing savings.
If you have to think about it…
Maybe you can’t help but think about it? Then choose to focus on some of the more positive aspects. For example, if your plan has an employer match, think of it as instant profit. Let’s say you put in $50 each paycheck and your employer matches it with another $50. You don’t have to be an investment professional to understand that instantly doubling your money is a good deal. Enjoy it.
Tough choices now lead to better choices later
Unfortunately, my son’s plan doesn’t offer a matching contribution or auto enrollment. He, and the millions of people without access to workplace savings plans, have to make an active decision to save. There is no question that it is not always easy.
What I told my son is that making a career in music is hard work and can take a long time. By starting savings now, he will be relieving some pressure on himself later. Look ahead a few years. Having something set aside for the future, some investment in his future security, can help him make the choice to stick with his music career even if it hasn’t quite gotten him to where he wants to be just yet. It’s tough, I told him, but it will make choices easier later.
As employers, industry providers and policy makers, we can make getting started so much easier for so many young people. Let’s push to extend the availability of workplace savings plans to the 49 percent of workers who currently have no access to them. Let’s make automatic enrollment the standard across the board and let’s improve incentives for a generous company match. Let’s help young people faced with a tough choice make the right choice.
As for my son, I think he made the right choice. He agreed to allocate 5 percent of his salary to his 401(k). I’d like to think he made his decision based on sound advice from a retirement industry professional. But I really think he was just listening to his mom. Either way, it’s a good start.
Anne Ackerley is head of BlackRock’s U.S. & Canada Defined Contribution (USDC) Group and a regular contributor to The Blog.