NextGen aims to retire young

No matter the generation, when folks are young, many dream of retiring early and living off their investment income. But something’s a little different with millennials and Gen Zers — more and more of them are literally putting their money where their mouth is and actively taking the right measures to do so.

So says Merrill advisor Jordan Ubertini, CRPC, CPFA based in Scranton, Pennsylvania. Ubertini is a member of Merrill’s NextGen Council, a group of millennial and Gen Z financial advisors and colleagues who have younger clients already preparing for retirement, many motivated by an early retirement age.

Their clients are not alone: According to Pew research, 67 percent of Gen Zers and 61 percent of millennials plan to retire before age 65 and those following the F.I.R.E movement — Financial Independence, Retire Early — may be setting even earlier target retirement ages.

Bank of America’s recent Workplace Benefits Report showed that planning for retirement is the primary goal for all employees, but generations differ on the level of importance they place on this objective. The priorities that come in second and third vary greatly by generation. Gen Zers and millennials rank fundamentals, like good savings habits, budgeting skills and paying for everyday expenses higher than other respondents, while baby boomers are focused on retirement planning, having made progress against other life goals.

Ubertini shares how he advises younger clients who are aiming to be financially independent — including how they should be prepared for any hiccups along the way that could impact their savings goals.

Katie Kuehner-Hebert: You shy away from using the term, retirement planning — why is that?

Jordan Ubertini: Within my practice, instead of using the word retirement when discussing long-term savings, I prefer to use the term, financial independence — essentially having enough income from sources to live the life one wants to live — whether that’s their company plan, Social Security or private investments, or a combination of all of those. That can mean different things for different clients, including traditional retirement with no work or changing careers to fulfill lifelong passions.

When I sit down with clients, I enjoy connecting and engaging with them not only on the financial aspects of their short-term and long-term goals, but also around the life priorities that matter most, such as family, health, home, giving, work and travel.

What are the factors that go into structuring a savings plan to achieve financial independence at an earlier age?

We talk about structuring their plans to factor in inflation, as well as their expected longevity, and what they should be doing now to plan for that. When clients are in their 20s or 30s, they have the benefit of time and time is a very valuable resource in terms of saving for a goal — compounding returns, first and foremost.

But to be most successful, clients also need to determine what their expected expenses will be, and this is a hard thing for younger people to do. They need to start by looking at their current budget and if possible, how that can change over time, to determine what additional cash flow they have to put towards their savings goal.

That word, budget, is a tough one for a lot of folks, particularly younger clients. Many financial institutions have budgeting software and other tools on their websites to help people figure out what they are spending on each month, which makes it easier for them to track. Once they know that, they can determine the amount of additional cash flow they need to put toward their savings goals without sacrificing their current lifestyle.

If they find themselves unable to save enough from their available cash flow, tracking their budget on a monthly basis can be helpful to see the categories of spending and single out areas where they’ve been over the targets they set and why.

While these savings goals may ebb and flow based on the year, with the help of their advisor, they can track progress over time to stay on track with their long and short term goals.

What about planning for when life events can get in the way?

Since there can be detours along the way to financial independence, I also like to talk to my clients about planning for any possible hiccups that can impact their portfolio. For clients in their 20s especially, they often think their lives will follow a straight line. That can happen in some cases, but in other cases, life happens — unexpected events impacting families and careers. Just look at last year with the pandemic — events can definitely change plans and people have to adjust or rethink how they are going to meet their goals.

I also advise clients on the importance of having an emergency fund — cash reserves amounting to three, six or even 12 months of living expenses — really, an amount they’ll feel most comfortable with. If they are a young person, it’s easy not to think about the possibility of having a health event or a job loss that can disrupt income — they often think they’re invincible and that’s not a possibility, but it is, and so we talk about the prudence of opening a bank savings account.

What other advice do you give Gen Zers and millennials to help them achieve financial independence?

Another big issue I talk about with younger clients is debt, certainly through credit cards but also student debt. That’s a huge topic of conversation and one that younger clients have a lot of concern over — some student loan payments can be the amount of a mortgage, and that’s a daunting task.

Advisors can really help younger clients meet their financial goals, customizing plans to fit their special goals and tracking plans annually to help catch any detours in life early on so they can adjust their plans.