Color of Money: Young adults are told to save for retirement as soon as possible. But is this the best advice?

Michelle Singletary on

WASHINGTON -- Young adults have at least one thing working in their financial favor: time.

Older adults who are faced with delaying retirement longer than they wish often confide in me that, if they could tell their younger self one thing, it would be to start saving for retirement as soon as possible.

But the slow and tedious process of saving can be a hard sell for young adults. It's especially difficult for those coming out of college with large student loans. Or if they're facing housing costs that take up 40% or more of their take-home pay.

Another challenge in persuading millennials and the group that follows them -- Generation Z -- to save is "FOMO," or the fear of missing out. They want to live life to the fullest while they're still young.

But could there be too much pressure on young adults to invest for retirement right away?

Here's a question I received from a parent during a recent online chat: "My young adult daughter, a recent college grad, is working for a nonprofit and can enroll in a 403(b) savings plan. What are the pros/cons of doing this versus signing up for a regular investment account?"


I relayed the question to some financial professionals, and they all answered with sound advice, emphasizing the need for young adults to set financial goals that include starting to save for retirement.

Spencer Betts, a certified financial planner based in Lexington, Massachusetts, chimed in: "The 403(b) has the advantage of long-term tax deferral. The other advantage of the 403(b) is the money is [automatically] taken out of your daughter's paycheck and deposited into the 403(b) every pay period."

Marguerita Cheng, a CFP based in Gaithersburg, Maryland, said: "The difference between a regular investment account and a retirement plan is that the funds [in the former] can be used for any purpose, not just retirement. With a workplace plan, an individual may contribute up to $19,000 per year (an additional $6,000 for participants over 50). With an IRA or Roth IRA, individuals can contribute up to $6,000 per year (an additional $1,000 for participants over 50). Employer-sponsored plans allow participants to take advantage of an employer match, tax-deferred growth, and a dollar-cost averaging all in one."

Lynn Ballou, a CFP from Lafayette, California, said: "My advice to newly launched adults in their careers is to start saving into any tax -deferred plan offered through your job as soon as you are eligible, even if it's just a few dollars per paycheck. And if there is a company match, try very hard to invest at least enough to earn that full match, which is in essence, free money."


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