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Empowering your money

CEO: You need to start saving for retirement ‘right after high school’

Dhara Singh
Reporter

This article was originally published on Yahoo Money.

Americans must squirrel away money as soon as they reach 18 – or 22 – if they want to guarantee a comfortable retirement, according to one expert.

“You’ve got to start sooner than you probably thought,” Dan Houston, CEO of investment firm Principal Finance Group, said in a recent interview with Yahoo Finance. “You need to start right after high school or college – whenever you find yourself in the workspace.”

The second key move, Houston said, is to sock away 13% to 15% of your annual income into your 401k or other retirement accounts. That’s enough to eventually allow you to replace 80% to 85% of your income that you will need once you retire.

Houston’s advice comes at a time when almost 3 in 5 U.S. adults say they need to catch up on their retirement savings, and only 1 in 5 max out their 401k or IRA contributions.

LONG BEACH, CA - JUNE 06: Long Beach City College graduates enter Veterans Memorial Stadium for their commencement ceremony in Long Beach on Thursday, June 6, 2019. (Photo by Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images)
LONG BEACH, CA: Americans need to start saving for retirement as soon as they graduate from high school or college, according to one expert. (Photo: Brittany Murray/MediaNews Group/Long Beach Press-Telegram via Getty Images)

“We have more capacity to save than we realize,” Houston said, suggesting that a Retirement Tuesday should follow the holiday spending that occurs on Cyber Monday. “There’s a reason that Amazon warehouses are pumping out so many items.”

Retirement misconceptions

People underestimate how much they will need in their post-work years, Houston said. Many end up spending more than 100% of what they made in their last working year immediately after they retire.

“It’s usually pent-up demand for travel or buying a motorhome or something of this nature,” he said, “and then it starts falling away.”

In later years, retirees have to contend with expensive prescription drugs and hospital stay costs. Current 65-year-olds can expect to pay $285,000 on health care during their retirement, with 15% of their living expenses going toward medical-related costs, according to a recent study from Fidelity.

CHATHAM, MA - NOVEMBER 5: Nurses aid Nick Burrill shares a laugh with Broad Reach resident Laurie Hill, 101, in her room in Chatham, MA on Nov. 5, 2019. Struggling to find workers for his nursing home and assisted-living center in this seaside tourist town, Bill Bogdanovich tried a new strategy: buying properties on the southeastern elbow of Cape Cod to rent to employees like Burrill. He offered below-market rents to workers, many recruited from off the Cape and as far away as Puerto Rico, who were having trouble finding places to live. A year later, his gambit appears to have paid off: Bogdanovich has been able to hire and retain more workers - the better for his senior housing residents, and for business. (Photo by John Tlumacki/The Boston Globe via Getty Images)
CHATHAM, MA: Health care costs in later years can take up a good chunk of retirement income. That's why people need to save 80% to 85% of their income to retire comfortably. (Photo: John Tlumacki/The Boston Globe via Getty Images)

People are also living longer. “Those last years are the most expensive years,” Houston said.

To save enough, Houston recommends a balanced portfolio. That’s “what wins the race in the long run,” he said, noting that Americans should avoid being stock pickers.

“Trying to pick winners and losers for the next decade or half a decade,” he said. “That [is] a very challenging effort for most Americans.”

Dhara is a writer for Yahoo Finance. Follow her on Twitter @dsinghx.

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