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The Millennial and Gen Z Guide to a Sweet Retirement


By: Jan Paul Ferrer


If you tell the average twenty-two-year-old that the best time to start saving for retirement is yesterday, they may throw you an incredulous glance. “Are you kidding?” they may say, “I’m not due to retire for another forty years!”

The argument you may hear from Millennials and even some older members of Generation Z—those born between 1997 and 2012—is that they’re busy starting a family or paying down student loans and they simply don’t have the money to worry about retirement.

Our polling1 shows that many young adults are, in fact, worried about having enough savings for their future. For example, nearly one in four Millennials, born between 1981 and 1996, is concerned about having adequate funds, while 69% are uneasy about making that money last a lifetime.1

However, having time on your side is a tremendous advantage. Starting a retirement plan early may be the single easiest way to retire with an impressive nest egg.

The magic of time

Here’s a hypothetical scenario that puts things into perspective:

Say 22-year-old Bob makes $60,000 a year and retires at 65. He contributes 10% of his pre-tax salary into his 401(k) retirement account while his employer chips in 2%. Assuming he consistently makes that 12% monthly contribution of $600 and earns a hypothetical 5% rate of return, he’ll end up with $1,057,228 at retirement.

Sally, however, contributes $1,000 a month at the same hypothetical rate of return, but she doesn’t start until age 45. By the age of 65 she will have $407,458 in her retirement account—just 39% of what Bob has saved.

While many investors go in search of the magic double-digit stock gain, young investors shouldn’t overlook the power of consistent contributions to their retirement accounts—even if the contributions begin very small.

Hypothetical results for illustrative purposes only Not representative of any particular investment.

Even small amounts make a big difference

A frequent complaint from young investors is that they simply don’t have the excess cash to invest. Using the example of Bob and Sally, let’s take a look at this misconception.

Say Bob complains that he can only afford to put away 4% a month due to his student loan and tight budget. Assuming the same rate of return over 43 years and a 2% employer match, he will have $528,614 at retirement—still signifi cantly more than Sally even though his monthly and overall contributions were considerably less than hers.

Hypothetical results for illustrative purposes only Not representative of any particular investment.

While that may not be enough for Bob to retire on, a study by the US Government Accountability Offi ce showed that 29% of Americans over 55 have no retirement savings whatsoever2.

Now, of course, investment returns aren’t usually steady like our hypothetical example and typically will fl uctuate. But with enough time on one’s side, even small contributions can make a big difference to an overall retirement portfolio.

Financial education that pays in the long run

Many young investors are also unaware about Modern Portfolio Theory, which looks at how an investor can build a portfolio to optimize expected return for given level of risk, or the importance of consistent contributions in a tax-free environment. A fi nancial advisor can also help explain asset allocation and diversifi cation to help smooth long-term returns through bear and bull markets.

But fi rst and foremost, young investors should consider the tax-free environment of the 401(k) to put the power of time to work for them. Often it’s the most important investment they’ll make for their retirement.


1 Source: Morgan Stanley Investor Pulse Poll 2017: https://www.morganstanley. com/press-releases/press-release–americans-confi dent-they-are-on-trackto- realize- 2 United States Government Accountability Offi ce, Most Households Approaching Retirement Have Low Savings https://www.gao.gov/ assets/700/697898.pdf The scenarios presented are provided for illustrative purposes only.

Important Disclosures: Asset allocation and diversifi cation do not guarantee a profi t or protect against loss in a declining fi nancial market.

When Morgan Stanley Smith Barney LLC, its affi liates and Morgan Stanley Financial Advisors and Private Wealth Advisors (collectively, “Morgan Stanley”) provide “investment advice” regarding a retirement or welfare benefi t plan account, an individual retirement account or a Coverdell education savings account (“Retirement Account”), Morgan Stanley is a “fi duciary” as those terms are defi ned under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and/or the Internal Revenue Code of 1986 (the “Code”), as applicable. When Morgan Stanley provides investment education, takes orders on an unsolicited basis or otherwise does not provide “investment advice”, Morgan Stanley will not be considered a “fi duciary” under ERISA and/or the Code. For more information regarding Morgan Stanley’s role with respect to a Retirement Account, please visit www.morganstanley. com/disclosures/dol. Tax laws are complex and subject to change. Morgan Stanley does not provide tax or legal advice. Individuals are encouraged to consult their tax and legal advisors (a) before establishing a Retirement Account, and (b) regarding any potential tax, ERISA and related consequences of any investments or other transactions made with respect to a Retirement Account.

Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

Jan Paul C. Ferrer is a Financial Advisor in Chicago, IL at Morgan Stanley Smith Barney LLC (“Morgan Stanley”). He can be reached by email at janpaul.ferrer@ morganstanley.com or by telephone at 312 312-419-3535

This article has been prepared for informational purposes only. The information and data in the article has been obtained from sources outside of Morgan Stanley. Morgan Stanley makes no representations or guarantees as to the accuracy or completeness of the information or data from sources outside of Morgan Stanley. It does not provide individually tailored investment advice and has been prepared without regard to the individual fi nancial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this article may not be appropriate for all investors. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

Insurance products are offered in conjunction with Morgan Stanley Smith Barney LLC’s licensed insurance agency affi liates.

Jan Paul C. Ferrer.may only transact business, follow-up with individualized responses, or render personalized investment advice for compensation, in states where [he/she] is registered or excluded or exempted from registration, https://advisor.morganstanley. com/janpaul.ferrer

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