Retirement savers are no stranger to taking advantage of a 401(k) match or employing a buy-and hold-strategy. But perhaps the “do-nothing” approach to retirement no longer stands, according to one expert.
“I used to be in the ‘do-nothing’ camp, but I think that’s not fair advice,” Farnoosh Torabi, a financial expert and contributing editor at NextAdvisor.com, a personal finance website, said on Yahoo Finance’s The Final Round. “I just turned 40 and I would have an appetite for risk, but what’s happening in the market is triggering me.”
Torabi, who is the sole breadwinner for her family, said she has made her portfolio more conservative by no longer holding 80% in stocks.
“Take a look under the hood to make sure your allocation is still aligned with what your goals are,” Torabi said.
‘A little bit can go a very long way’
But having a lesser risk tolerance doesn’t mean you should avoid investing in the first place, Torabi said. About a quarter of millennials haven’t started saving for retirement, similar to before the pandemic, according to a study by personal finance site Bankrate.com.
“The student loan debacle is a real problem. It's a $1.5 trillion problem and we’re seeing that it’s a reason why so many millennials are delaying a lot of stuff [such] as not buying houses as early,” Torabi said. “We’re seeing, for example, more than half of millennials postponing retirement [saving] because they’re grappling with their student loan debt.”
To compensate, Torabi recommended that millennials start out by contributing smaller amounts to their employer-sponsored 401(k) account.
“We’re not asking millennials to put thousands of dollars into the market, we're saying $10 a day,” Torabi said. “A little bit can go a very long way because as we know, it’s not just how much you invest, it’s how early on you invest.”
Torabi said the automatic contribution to your 401(k) from your paycheck helps those just starting out in their careers and who may not have built up the habit of saving regularly.
“The beauty of that is that it’s an automatic distribution from your paycheck to your retirement account, so that the money doesn’t hit your bank account but instead your portfolio,” Torabi said. “Behaviorally, we cannot be trusted on our own so let the [portfolio] do it’s thing.“
While convention advice says to put away 10% to 15% of your paycheck into a retirement vehicle, those with student loans can start out smaller, she said.
“Start out with 1% or 2% and do what you can to get that company match,” Torabi said.
One last piece of advice Torabi offered younger investors: Seek out advice and perspective from those who are older.
“Ask them what is one thing they wish they would have done for retirement,” Torabi said. “Chances are they will tell you we wish we would have saved a little bit more.”