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How Young Adults Can Start Saving and Investing

People who make the effort to start saving for retirement early give themselves the advantage of compound interest. ILLUSTRATION: PAUL BLOW

My wife and I have several grandchildren who are in college or have recently graduated. We would like to share a good resource with them about starting and building a nest egg. Any recommendations?

Two points: First, I have been saving this question for the holidays, hoping it might provide a gift idea or two. Second, you and your wife can now go directly to the head of the Best Grandparents line.

The advice seemingly is as old as retirement itself: It’s almost never too early to begin saving and investing for later life. That said, many people find it difficult to start. A study in 2019 by Morning Consult for the Certified Financial Planner Board of Standards found that, among people saving for retirement, about half (49%) started when they were in their 30s or older.

Interestingly, in the same survey, almost half of respondents (49%) said people should begin saving for retirement between ages 20 and 29. One in five adults (21%) said people should begin saving in their teens.

Of course, people who make the effort to start early give themselves an enormous advantage in the retirement sweepstakes, given the magic of compound interest. The Securities and Exchange Commission has a nice calculator where you—and your grandchildren—can run the numbers.

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Example: Start with $1,000 and save $300 a month for 40 years. If your return averages 4% annually, you end up with almost $347,000. Start with $1,000 and save $300 a month for 30 years, and you end up with just $205,000.

I recommend giving each of your grandchildren a copy of “If You Can,” by

William Bernstein,

an investment adviser and author. This 48-page booklet is written expressly for young people and provides a simple, all but foolproof recipe for building a secure nest egg. The opening paragraph should grab your grandchildren’s attention:

“Would you believe me if I told you that there’s an investment strategy that a seven-year-old could understand, will take you 15 minutes of work per year, outperform 90% of finance professionals in the long run, and make you a millionaire over time?” (If you’re wondering, the strategy involves investing—early and conscientiously—in stock and bond index funds.)

On Your Mark…

The ages at which surveyed adults who are saving for retirement said that they started:

8%

Under 20

20-29

39

30-39

26

15

40-49

6

50-59

60-plus

2

Don’t know/

no opinion

3

Source: Morning Consult

The title comes from the discipline needed for any investor to be successful: the willingness to start a savings plan and stick with it. As Mr. Bernstein notes: “Dieting and investing are both simple, but neither is easy.”

Yes, you can purchase the booklet online for several dollars. Or, you can download it—at no charge—from Mr. Bernstein’s site, efficientfrontier.com.

And…if you have the resources, perhaps you can help your grandchildren get their savings plans off the ground. No, you aren’t likely to see the results of your generosity. But you will have paved the way for several successful retirements. And that’s a heck of a gift.

My brother took out a reverse mortgage several years ago, and his home today is worth more than when he got the mortgage. I have three questions: Is it possible for my brother to get out of this reverse mortgage? If so, how would he do this? And how does the fact that his home has increased in value figure into this?

Yes, your brother is able to get out of his reverse mortgage. And the process is relatively straightforward.

In this case, the reverse mortgage, essentially, is just like having a traditional, or “forward,” mortgage, says

Stephanie Moulton,

a professor at Ohio State University who specializes in housing and consumer-finance policy. Typically, a reverse mortgage is repaid when the borrower dies, or when the borrower’s surviving spouse dies. If your brother wishes to sell his home now—before the end of the loan’s term—he simply would need to pay off the existing balance on the reverse mortgage.

Your brother can check with his lender to get the current balance. That figure is based on how much money has been advanced to your brother (remember: with a reverse mortgage the lender is making periodic payments to the homeowner) plus interest. If your brother’s home has appreciated in value since he first secured the reverse mortgage, there’s a good chance he may owe less than the house is worth, Dr. Moulton says. Which means if he sells the home and pays off the balance, he can keep the difference.

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What advice do you have for young adults looking to start saving and investing? Join the conversation below.

Of course, if your brother wishes to keep the house, he would need to pay off the balance in some other way.

And that raises an interesting possibility. Let’s say your brother wants to stay in his home—and wants to tap additional equity because his house has appreciated in value. If that’s the case, he could refinance the existing reverse mortgage into a new reverse mortgage, Dr. Moulton says. In fact, about half of new “home equity conversion mortgages” today—which are reverse mortgages insured by the federal government—are refinances, she adds.

That said, your brother would want to make sure that the house has appreciated enough to make this worth it. That’s because the refinancing will involve a new round of closing costs.

Mr. Ruffenach is a former reporter and editor for The Wall Street Journal. Ask Encore looks at financial issues for those thinking about, planning and living their retirement. Send questions and comments to askencore@wsj.com.

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