WealthCare Financial Managing Partner Shaun Tarzy joins Yahoo Finance Live to discuss how much workers should be saving for retirement and how to maximize their potential wealth.
Video Transcript
- All right, time now to talk about getting retirement ready, brought to you by Fidelity Investments. For years, we've heard that the goal for retirement savings is $1 million, but WealthCare Financial's recent analysis shows that with cost of living on the rise, Gen Z and millennials will have to triple that. Joining us now is Shaun Tarzy, WealthCare Financial managing partner. Shaun, if Gen Z needs to save $3 million, how much do they need to have to save every year?
SHAUN TARZY: Well, that depends on, you know, when they start, how much they already have. But just want to start by saying thank you, guys, for having me on. But when it comes to what they need to be saving, it depends. So, if we're starting with a 30-year-old, they should be probably saving close to $580, $600, at least, a month. And that's if they're going to earn a high rate of return. So it depends on how aggressive and risky that they're looking to be.
So it really is a trick question as far as, like, how do we get to that $3 million mark? And for some people it's $3 million, and I would say that's the median amount. Some people may need less, some people may need more. So there's a lot of different things that we have to look into when we're talking about retirement and planning for the future.
SEANA SMITH: Well Shaun, speaking of less, there's data from Vanguard saying that the average 24 to 35-year-old has just over $14,000 in savings, clearly much lower if they want to get to that $3 million number. If you're one of those people, how do you catch up?
SHAUN TARZY: So, I typically see-- when it comes to the younger population that we work with-- they usually don't have as much. So what will end up having to happen is as they get older, they're going to hit some milestones. So typically most people don't hit their high income potential until they're in their 45, 55 range. And that's typically maybe they'll also become empty nesters, and that's when they're really going to be able to front load a lot of that additional money that they need to hit those numbers.
So, I agree, it is a lot of people that are a little bit further away from that goal, but there's a lot of different things that are going on, especially with the SECURE Act that was passed last year in December. So basically, some of those things that they've discussed are allowing people to pay their student loans off and the employers match will go into the Roth-- into their bucket.
Also, if people are looking to do Roth contributions, the employer can now match into the Roth vehicle. And there's other things that they are looking to do, such as 529 plan conversions into a Roth to help a lot of the younger generation to get to that goal and get to retirement.
- Life expectancy also dramatically increasing. Gen Z has a higher chance of living to 100 than we certainly did. How does living longer factor into the equation?
SHAUN TARZY: It plays a huge factor. So, these individuals that we're looking to plan for, you know, back in the day, we would plan for, you know, 15, 20 years. Now we're looking at 20, 30, potentially even 40 years, depending upon where they retired-- retiring. So we need to make sure that they have enough money saved.
We also have to look at a withdrawal rate, which is the rate of the amount of money that we're going to be pulling from our investment vehicle at the same time as how much are we making every year to say, are we going to run out of money at a certain point in time?
So there's typically a sweet spot when we're sitting with individuals that we kind of will look to uncover as far as how much they need to be pulling in so this way they can make their money last a very long time. So it's not a matter of how much am I putting away, it's how much am my pulling out as well is a very important question to ask as well where is it invested, and how is it going to be taxed when I get to retirement?
Because taxes play a huge role right now, when people are earning their income, and it plays a big role when we're working with people that are retired.
SEANA SMITH: Shaun, so there certainly is one part of this that people are going to be living longer. They are living longer today than they were in the past. But also just in terms of the younger generation, we've seen this rise in the gig economy. How has that-- from your perspective-- affected retirement savings, and what would your advice be to those out there that maybe aren't putting away anything because they're involved in the gig economy?
SHAUN TARZY: So, I think that all people should be putting some sort of money away, whether it's in a retirement account, in a bank account, in an investment account. They need to be starting to do some type of retirement funding, investing, to get to those goals, whether it's that they want to take a 5-year hiatus when they're in their 40s and then get back on the horse and start working again. So I just think that getting additional money put somewhere is where we usually like to see a lot of our clients.
Now the other thing is, making sure that we look at where are we spending, especially with the way that things are nowadays. It's so much easier for people just to spend and not realize that they're spending a lot of their money. So one thing that we typically look and go through when working with these generations is, we'll go through where is their income going. There's three places. It's going to either go to taxes, it's going to go to expenses, and it's definitely going to have to go to the other portion, which we've discussed, with savings.
So those are the three areas. So typically, if we have two of the three, we can always figure out how much money that they're spending and where is it going. And from there, we could typically look at budgeting and figuring out what can we cut and where can we add.
- Good stuff. Appreciate all the tips there. Shaun Tarzy, WealthCare Financial managing partner. Appreciate that.
