4 Retirement Planning Tips for Recent College Grads

Today’s college graduates face some major hurdles on the road to retirement. For many, planning for retirement isn’t even on their radar – and with looming student loan payments, it’s hard to motivate college grads to start thinking about putting money aside that they won’t spend for decades.

A 2015 study called Money Matters on Campus found that 12 percent of college freshmen don’t even check their account balances because it makes them nervous, and, on average, they could correctly answer only two of six financial literacy questions on topics like emergency funds, student loan debt and late credit payments. It’s no surprise that preparing for retirement remains a topic most college grads aren’t nearly ready to discuss.

Often, the first big expense out of college is repaying student loans. In fact, the average graduate pays $351 a month in student loans, a pretty hefty price to afford on a starting salary. These payments, along with unavoidable expenses like rent, utilities and car insurance, can leave young adults feeling hopeless and with little motivation to invest in retirement.

However, now is the time for young 20-somethings to start saving, and there’s a lot to learn. Here are four tips for recent college grads to save now and worry less later:

1. Keep spending on track

It can’t be stressed enough – tracking all spending in one place is vital. While new technologies allow for quick and simple payments without having to carry around cash, they also make it all too easy to not feel the effects of spending. Budgets often fall through because young adults try to manage their rent separately from their retirement savings – or they’re just not tracking anything at all.

Start by plugging larger monthly payments into your phone as they come in, then work down to the smaller expenses, like groceries. Keeping track of the big and little payments seems tedious at first, but it homes in on where to cut down and when to save up. Downloading a budgeting app – and checking it often – can also help to avoid making impulsive spending decisions.

2. Start paying off debt ASAP

Being in charge of car insurance, phone bills and rent payments for the first time can be overwhelming, especially for grads who feel like they’re already drowning in student debt. Although they may feel financially strained, in reality, young adults often have fewer commitments than they will down the road when they might think about investing in a home, traveling or starting a family.

To help manage debt, use a debt roll-down system – make minimum payments on all but the smallest debt and put as much focus on it as you can until it’s paid off. Your 35-year-old self will thank you.

3. Always opt to enroll

Many employers offer a 401(k) retirement plan, which means employees don’t have to pay any income taxes on what they contribute to it, delaying the need to pay taxes until funds are withdrawn for retirement. Even if it means starting small, build that retirement fund now. Retirement may seem far away, but every year of work counts.

The trick to making compound interest work – aka “interest on interest” that makes money grow faster than simple interest alone – is time (something you can’t get later). While it’s tempting to tinker with retirement savings as it adds up, leave it alone. You never know what life events may break the bank, so start saving the moment you land a post-grad job and continue to throughout your career.

4. Don’t be afraid to ask for help

If college grads aren’t confident in their long-term budgeting skills, financial training is a solid investment that can truly pay off. Talk to an objective, experienced third party who isn’t going to try to sell you insurance or investments. Be aware that the tempting, “free” financial advisors at a local bank might earn commission on selling investments that may not provide benefit in the long run.

Think of this type of help as a personal trainer for your wallet. Taking a “trial and error” approach isn’t the best way to plan a financial future. Monthly advice costs about as much as a night out with friends, and you’ll wake up with saved cash, not a hangover.

One of the most overlooked parts of moving from a college bubble to adulthood is budgeting for retirement, but financial responsibility should be top of mind for recent grads. The best thing young adults can do for their financial stability is make an effort to learn and start saving early. Facing retirement now is likely to pay off much more later.

About the author

Christopher Tracy is President, Financial Wellness at Mvelopes by Finicity, a direct-to-consumer budgeting tool and financial wellness platform. Christopher knows that money, and the way you manage it, is the great equalizer for people of all ages and lifestyles, and his passion for helping consumers better manage their finances drives him forward. Christopher graduated from Cal Poly before getting his MBA from Harvard Business School.

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