By: Maya Ellman
For those still in college or for recent graduates, financial and estate planning may seem unnecessary. Careers have not yet-or just-begun and retirement is years away. But local financial and investment planners say it's a good time to start saving and investing.
"It is never too young to start planning," said Peter E. Tedstrom of Denver-based Brown & Tedstrom Inc.
Tedstrom explained that if a 20-year-old placed $3,000 each year in an Individual Retirement Account (IRA) and earned 8 percent interest (a conservative estimate), at the age of 60, $775,000 would be accumulated.
If someone waited until age 30 to put $3,000 annually into an IRA, only $340,000 would be saved by age 60, said Tedstrom.
"This is the most important reason to start sooner than later," said Tedstrom. "Time can be our greatest enemy or our greatest ally if we start investing early."
Tedstrom explained that to save $3,000 a year, $250 a month would need to be put into an IRA. The $250 is tax deductible, so that equals $190 out-of-pocket money a month.
Tedstrom also said it's important to find an employer who will match contributions into a 401(K) plan. An employer may add an amount for each dollar contributed, up to a certain percentage of a paycheck. This will give another head-start on retirement planning, Tedstrom said.
Another option is to put the $3,000 or more a year into a mutual fund investment, said Tedstrom.
When you buy into a fund, you are buying a piece of a diverse portfolio. There is safety in numbers, and diversification is a valuable strategy, Tedstrom said.
The best option of all is to buy stocks, Tedstrom said.
"They are likely to outperform bonds and cash by a long shot," said Tedstrom. "When you have a long-term horizon, it is important to have a portfolio weighted towards growth. If you're 40, your money has less time to grow and recover."
However, investing and saving in your early 20s is harder than it seems, said Lauren Carson. Carson, 22, graduated from Trinity University in San Antonio, Texas, in May. She now lives in Denver and works as a credit risk manager at the Murray Hill Co.
"I try to save half of each paycheck and put it into savings," said Carson, who currently lives with her parents. "If I lived alone, I don't think I could save any. Between car payments, cell phone bills, rent and groceries, it would be really hard to save."
Although putting aside money each month is a challenge, Carson knows it's important.
"There is enough buzz about not relying on government and Social Security that I know there is a real need to save," said Carson. "You can't really ignore that fact these days."
Tedstrom said he has noticed after Sept. 11 that young people feel less invincible, knowing life can be short, and realize-like Carson-the importance of saving.
"Young people are a little more conservative in the market because of the last three years," said Tedstrom. "They are thinking more about their own estate planning."
Carson is fortunate and doesn't have a college loan to pay off, but many recent college graduates do. For those individuals, Myra Salzer, founder, wealth coach and Certified Financial Planner at The Wealth Conservancy in Boulder, said it is important to pay off loans and learn to save before investing in estate planning.
"There is a psychological component of being debt free," said Salzer. "You gain a sort of confidence."
Another important step of financial and estate planning is to know the amount of money that will be inherited from parents and other relatives later in life, Salzer said.
Salzer explained some people may choose to live their lives differently if they knew how much they were going to inherit.
"There needs to be open communication," said Salzer. "Start getting educated and integrated with what you have."
Angel Chi, president and founder of Denver-based Chi Investment LLC, said for people in their 20s, without any assets, it's too early to complete an estate plan.
You can't decide how to preserve your assets and ensure distribution when you don't have a spouse, children or property, said Chi. However, she advises people when still young and healthy to get started with a life insurance plan.
"It's good to get into the habit of planning for retirement," said Chi. "Through life insurance, you can begin to plan under the safety net of the (life insurance) companies' umbrella."
Chi recommends a variable rather than a fixed life insurance plan when young. Unlike a fixed plan, a variable life insurance plan allows for more room to be conservative or aggressive. This is a more appropriate choice for those under 30, Chi said.
"When you are young, you are at the beginning of your earning stage," said Chi. "This gives you a longtime perspective."
Chi said you should have six months of savings on hand should you find yourself without a job.
"The job market is very volatile," said Chi. "In case you are in between jobs, you need to be able to access money."
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