Retirement can be a pretty abstract financial topic for kids to tackle, especially since it’s so far into the future. Still, they need to know what it is and start planning for it early, especially since they’re likely seeing you putting money aside for it, too. These are the key points you should hit when trying to explain retirement to your kids.
1) What retirement means
Retirement usually means that a person chooses to leave the workforce or a specific career on a permanent basis. Most people make this choice when they are older, so retirement has come to be associated with being elderly and, to some degree, being physically or mentally unable to continue performing professional tasks. In fact, some kids think that being retired means you have to live in a nursing home. If you are healthy and have planned well, however, you retirement years can be extremely freeing and enjoyable.
2) When people usually stop working
Most people stop working when they have reached senior citizenship as defined by their governments. Depending on where you live, this often entitles you to some financial benefits from formal agencies. People are living longer than they did in the past, so many governments are setting retirement age higher. In the United States, normal retirement age is 67. Some people choose to retire earlier, however, sometimes forfeiting some of their benefits. Professional athletes routinely do this, as do CEOs or founders of big companies, such as Bill Gates of Microsoft.
3) Why people stop working
People often retire because they physically can’t handle work anymore, or because they’ve reached a point where they are financially secure enough not to need a regular paycheck. Retirement doesn’t mean you are lazy, and in fact, most people who retire have worked extremely hard for years or put their bodies through a lot of physical stress to earn enough money to do it
4) What people do when they retire
Ask a child what a retired person does and you’ll probably get answers like “cleans the house”, “babysits a lot”, “watches television all day” or even “nothing”. The reality is that people who retire do a ton of different things depending on their physical status, financial level and interests. They are often very active traveling, volunteering in the community or pursuing hobbies like dancing. Some individuals go back to school, while others become consultants or entrepreneurs.
5) How long people spend in retirement
With kids not knowing exactly what retirement means or involves, not surprisingly, it’s pretty common for them to be a little confused about how long retirement lasts. That’s bad news from the financial perspective, because it makes it hard for them to understand why saving early for retirement is necessary. Longer life expectancy means that most retirees spend at least a decade not working, but if you’re healthy, you might spend double or even triple that time out of work.
6) Why saving for retirement is important
When you retire, you don’t get a paycheck anymore, although you might qualify for some financial help from different agencies. You have to make sure you have enough money to cover your basic expenses, such as food, even with limited or no income. For most people, saving money from jobs, investment returns and other sources is the only way to do this. Getting retirement money quickly, such as some athletes, professional musicians, CEOs or lottery winners do, is not the norm. Kids also need to understand that parents generally aren’t going to come to their rescue—children sometimes assume they’ll get retirement money from you, simply because they’re so used to you providing money for other things.
7) How much money is necessary to retire
Experts acknowledge that, at least in the United States, covering even basic costs through retirement can reach well beyond the million-dollar mark, especially for people who, being in good health, can expect to spend many years out of the workforce. Personal preferences come into play after those expenses are taken care of. You’ll need more money if you want to spend retirement traveling, for instance, than if you plan to stay home. The important thing is just that you have a retirement figure in mind to work toward as a goal. To a kid, even a few hundred dollars can seem like a huge amount, so don’t be surprised if it takes a while for them to grasp the real value retirement has.