Save early and often.

At a time when so many of our basic long-held beliefs regarding personal finance and the economy are shaken, there is one piece of advice still worth passing on to offspring and grandchildren, particularly recent and soon-to-be college graduates: save and contribute to 401(k)'s, Roth's, IRA's, and retirement plans at every opportunity.

Our economic reality is very different than it was just 20 years ago:

• Today, the average college graduate is carrying roughly $25,000.00 of student loan debt.
• Company-funded pensions are generally a thing of the past – retirement savings must be the responsibility of the individual.
• Small businesses comprise a larger portion of the nation's economy, but are struggling under the rising costs of healthcare and energy.
• With foreclosures continuing to drive housing costs lower and countless owners owing more on their mortgages than their homes are worth, many are re-considering the dream of owning a home. Rentals appear more attractive.
• According to the Bureau of Labor and Statistics, more Americans (14 million) are self-employed: meaning retirement benefits, access to unemployment benefits, and health insurance have to be obtained independently.

These economic realities combine to dissuade our youngest workers from contributing to 401(k) and retirement plans (and savings in general). Many new workers are surprised and discouraged at how benefits, state taxes and federal taxes can reduce the size of a paycheck – so putting aside for retirement seems counterproductive to paying their rent and/or student loans. But workers ages 20 – 29 cannot afford to ignore the importance and significance of saving now:

• Often a 401(k) plan includes a matching contribution made by the employer to the account of every worker who contributes. The typical matching contribution is three percent paid to employees who contribute six percent. This is often referred to as "free money"!
• Contributions are tax deferred and can be tax deductible – meaning "Uncle Sam" will take a little less from the worker's paycheck. Some employers also offer Roth 401(k)'s which allow after tax contributions. These accumulate tax deferred and withdrawals may be tax free, provided you follow the rules.
• If your employer does not offer a retirement plan, there are many other individual retirement savings options to consider, such as a traditional or Roth IRA.
• The money saved by workers in their 20's has much more time to grow than money set aside later in life. The benefits of compounding should not be underestimated.
• Life spans are getting longer and longer: this means that today's youth will spend more years in retirement than their parents. But more years spent in retirement require more savings.
• Social Security – no one knows how this program will look in 40 to 50 years, but it is prudent to assume that there may not be adequate funding for the retirement of today's youth. Social Security will only provide a supplement to the savings accumulated now.

It's been said before, but it is never too early to start saving for retirement. And once a person has taken the first step on this savings path, in a short time it becomes an important habit that can last a lifetime and can lead to financial independence.

Heidi Clute, CFP® of Clute Wealth Management in South Burlington, VT and Plattsburgh, NY, an independent firm and registered investment advisor that provides strategic financial and investment planning for individuals and small businesses in the Champlain Valley region of New York and Vermont. Clute Wealth Management and LPL are separate entities. The opinions voiced in this material are for general information only and not intended to provide specific advice or recommendations. LPL Financial does not offer legal or tax advice.

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