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My son had no real direction. At 31, he moved in with us and now earns $40,000 a year. What type of savings should be his No. 1 priority?

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Dear Quentin,

After moving from job to job with no real direction through his 20s, my 31-year-old son has landed a job that pays $40,000 with health and other benefits and potential for growth in his chosen industry. He has no savings, for retirement or otherwise. 

He is currently living back at home — rent-free, as we live in a very expensive part of the country — and I see this as his opportunity to begin to save money for short-term (moving out on his own for good) and long-term (retirement) goals. My husband and I have no problem with him living with us for another two years or so in order to accomplish this. 

My question is: What do you recommend he should do to develop a plan and a budget? What type of savings should be his priority? I am sure that after this COVID-19 pause, there are quite a few individuals his age who share his circumstances.

Mother and Landlord

Dear M&L,

You’re right that your son moving home in an effort to save money is an example of a trend happening in homes across the country. In fact, more than half of young adults are living with their parents, the largest share since the Great Depression. During the pandemic, there was a rise in 18- to 29-year-olds living with their parents, across racial and ethnic groups and among urban and rural households, according to a report from the Pew Research Center. Growth was sharpest among 18- to 24-year-olds and white adults. 

“The share of young adults living with parents declined in the 1950 and 1960 censuses before rising again,” the Washington, D.C.-based think tank said in a report released in 2020. “Young adults have been particularly hard hit by this year’s pandemic and economic downturn, and have been more likely to move than other age groups.” This impacts young adults and their families, and adversely affects the economy. The fewer new households are formed, the less demand for household goods and services.

Of course, many young people find themselves in a Catch-22: They can’t save money for retirement or for a down payment on a house of their own because of rising rents, particularly in metropolitan areas. There was a dip in rents during the early days of the pandemic, but they have risen again significantly in cities like New York. Research from Stanford University earlier this year concluded that the COVID-related migration from cities created a “donut effect,” meaning that many people did not move too far.

“Many young people find themselves in a Catch-22: They can’t save money for retirement or for a down payment on a house of their own because of rising rents.”

Your son is fortunate to have parents who are willing to let him stay rent-free, and for such a prolonged period of time. It’s a good opportunity for him to exhale, live frugally and save aggressively: 70% in stocks and 30% in bonds in your 30s and, conversely, 30% in stocks and 70% in bonds in your 70s. He can also open and contribute the maximum (or as much as he can afford) to a 401(k) at work, and a Roth IRA he can contribute to with post-tax dollars while he is in a low tax bracket. 

Other guidance for someone in their 30s (or any age, for that matter): Consider taking out life and personal liability insurance, and avoid credit-card debt at all cost. If he has a card, pay it off every month in full. Faron Daugs, the founder & CEO of Harrison Wallace Financial Group, had these additional tips: “If you’re purchasing a home, strive to put at least 20% down to avoid private mortgage insurance (PMI) costs. Utilize other employer benefits like long-term disability and life insurance to make sure any potential risks are covered.”

The best thing for your son to do now is acquire good habits. He would benefit from automating his savings (putting money aside every month without seeing it) and removing shopping apps from his phone. The best way for young people to get a raise — unfortunately, if they like their company — is to change jobs. In some cases, workers can effectively earn double the pay raise by switching jobs rather than sticking around for their annual pay hike. 

If your son does change jobs, he should protect his retirement fund.

“Too often, workers opt to cash out a 401(k) from their previous employer. If you do cash out before age 59½, you’ll pay a 10% penalty on top of income taxes, which could be as much as 37% if you’re a high earner,” Bankrate advises. “The smart move is to roll over the 401(k) into an IRA, which you can then invest any way you want. Bad timing is another costly trap. Most employer-provided retirement plans require you to work a certain length of time before you become eligible for full benefits, known as ‘vesting.’”

Good luck to you and your son, and enjoy this extra time together.


You can email The Moneyist with any financial and ethical questions related to coronavirus at [email protected], and follow Quentin Fottrell on Twitter.

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

The Moneyist regrets he cannot reply to questions individually.

More from Quentin Fottrell:

• I live with my girlfriend, 59, who owns several homes and has saved $3 million. I pay utilities and cable, and do lots of repairs. Is that enough?
• ‘Until now, I’ve been waiting tables’: I’m 32, and just started a new job in a factory. I have a 401(k) and an emergency fund. What can I do to retire at 55?
• ‘He is the most computer-illiterate person I know’: I was my husband’s research analyst, caregiver, cook and housekeeper. Now he wants a divorce after 38 years.
• My daughter, 29, will inherit a ‘substantial sum’ from her late grandfather. But my husband maintains a tight grip on her trust.

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