Wellington Altus Private Wealth
AUG 8: BEST FROM THE BLOGOSPHEREAugust 8, 2022
Do old boomer money rules make sense for the young?
Some of the old tried and true money rules us boomers have long lived by may not hold up for younger generations.
An interesting article by Alison MacAlpine in the Globe and Mail casts doubt on the relevance, for today’s young people, of some of the old boomer money beliefs.
“Save 10 per cent of what you earn, invest 70 per cent in stocks and 30 per cent in bonds and keep six months of expenses in an emergency fund. Rules like these worked well for many baby boomers, but don’t necessarily apply to younger generations,” she writes.
Her article quotes Julie Pereira, of Edward Jones, as noting the old boomer “how-to” axioms followed the belief that life would unveil itself in a very specific, predictable order.
“Older generations would have an order of operations on how they wanted to do things – get married, buy a house, have children, save for retirement. Now we’re seeing that be more fluid,” Pereira states in the article.
Home ownership, the article continues, may be less of a priority for younger folks given the “eye-watering prices, rising interest rates and high levels of student debt.” Saving for retirement, the article warns, may also have “dropped down the list” for younger folks, replaced by “saving for a series of sabbaticals or travel breaks from work.”
The article suggests that another old boomer retirement target – having 70 per cent of your pre-retirement income as retirement income once you are 65 – may no longer work, given that many people plan to work longer or have more expensive plans for when they retire.
The article casts doubt on what our Uncle Joe used to say – bank 10 per cent of what you make and live on the rest.
“As for saving 10 per cent from every paycheque, that may not work for people with fluctuating salaries. Sometimes they’ll need to use everything they earn, and at other times they’ll be able to save more than 10 per cent,” the article states.
As for the investing rules of thumb, states Rod Mahrt of Victoria’s Wellington-Altus Private Wealth in the article, “we reached the conclusion that the traditional 70/30 (equity/fixed income) asset allocation that worked so well for past generations is not going to work for today’s generation. It’s not going to work for the next 30 years. It’s not even going to work for the next 10 [years].”
Mahrt tells the Globe that bonds have had a rough patch of late, and that there may be safer investment havens with real estate, infrastructure and “low volatility hedge funds.” Today’s young investors may also be interested in “purpose-driven” investments that benefit society or the environment.
The article concludes by saying that while some elements of the boomer plan – like having an emergency fund – still make sense, it’s important for boomers to share their money experiences with their kids (good and bad) so they can develop their own plans based on their own needs and today’s market and economic conditions.
The key takeaway, at least from a boomer perspective, is that having an individualized plan is better than going by rules of thumb. The article stresses the importance of getting professional help with money management, which is also good advice.
If mom and dad’s money rules don’t work, the article suggests, develop some of your own rules that do.
Putting off retirement saving until later can work, but you’ll have to put away a lot more in the run-up to retirement than you will when it is three or four decades down the road.
If you can’t afford an Uncle Joe 10 per cent rule, try five per cent, or two per cent. Start small and ratchet up when you can. Investing for retirement is a long-term proposition so the earlier you start, the better, even if it is with a relatively small monthly contribution.
Managing the investment of your retirement savings is something that the Saskatchewan Pension Plan can do for you. SPP’s Balanced Fund’s asset mix is frequently adjusted to keep your savings growing regardless of market ups and downs. Check out this made-in-Saskatchewan retirement savings solution today!
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Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock, and playing guitar. Got a story idea? Let Martin know via LinkedIn.