Monday, August 18, 2014

Should you Consider Starting a Retirement Savings Account for your Kids?

Children shouldn’t have to think too much about retirement. About the biggest thing your two-year-old should have to concern themselves with is whether they’re going to get blueberry or strawberry yogurt after supper. It might be something you want to think about yourself, though. Through the haze of trying to put together something of a retirement savings for yourself, imagine how tough it’s going to be for your kids, and ask yourself, do you want them to have to go through what you’re dealing with? If you don’t relish the prospect of working till you’re 75 or older just to be able to take a break a few years before you kick the bucket, imagine how expensive and difficult it’s going to be sixty or seventy years from now for your kids. It’s become unflinchingly clear over the course of the last few decades that if you don’t start saving as soon as you start working, you’re liable to end up having to work the checkout lines at Wal-Mart to make enough for your blood pressure medication every month, even if you do have half-decent health insurance and a fairly good bit put away in your 401-k, Roth, or other savings plan.

Do you want your kids to have to go through that? Sure, you don’t want to give them a complete handout, and you certainly don’t want them to blow all that money on a nicer car than you can afford when they turn 16, but at the same time, it might be worthwhile to think further into your child’s future than just their college years, and put away a few bucks here and there to ensure that when they think back on you in their golden years, it will be with thankful hearts that you had the forethought to get their retirement account started early.

Now, that doesn’t mean that it’s going to be easy. Currently, underaged Americans can’t have a 401-k in their name. Neither can they have an IRA other than an education savings account. While that’s great, it doesn’t serve our purposes here, so we’re going to have to get creative. That, and you’re going to have to remember that you love them through the teen years so that you don’t end up buying that fancy sports car you’ve had your eye on when the account value starts to really balloon. It’ll take about 15 years or so, which, unfortunately is when most teenagers start getting really mouthy, and you’re going to be most tempted to say “to heck with it.” 

Now, for our purposes, let’s just look at a small amount, $25 per month, with an initial deposit of $25. Additionally, let’s assume that it’s placed in a stock account that earns at minimum the stock market’s historical average of about 9% return, compounded monthly. Obviously, riskier stocks or stock funds might go higher, but they might go lower as well, so the average is a useful place to work from. With that $25 per month investment, a 9% return means over 1.1 million dollars after 65 years. That’s more than a little nest egg, and could mean the difference between your little one working till their last days and enjoying twenty or thirty years of leisure before their time comes. Add to that a thorough education in how valuable savings is, and your child is sure to not have to worry about their future! If you’re ready to take the plunge with such a tiny amount, and build your legacy the right way, then stay tuned in a few days and check out the best ways to make this happen!

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