Can Twitter make saving for retirement cool?
On Friday, a day when some of the hashtags trending on the social networking site Twitter included #IfIHitTheMegaMillion and National Cleavage Day, a group of more than 140 financial bloggers was determined to stand out from the pack with the hashtag #RothIRAMovement.
The idea is to make the Roth IRA -- a type of retirement account providing certain tax advantages for younger and other investors -- into something trendy.
Jeff Rose, a financial planner in Carbondale, Ill., started #RothIRAMovement on Twitter on Tuesday, and by Friday the hashtag was gaining steam -- but nowhere near the traction garnered by hashtags like #ButYouBallinTho or Happy Birthday Celine Dion.
Rose and 148 other financial planning bloggers are trying to encourage more young people to invest in the retirement accounts, which are not taxed when people withdraw from them after age 59 and a half; instead taxes are paid up front.
The accounts can benefit young wage earners who are now paying taxes at rates in the lower brackets but who expect to earn more and be taxed at a rate in a higher bracket at retirement. (One of the financial planners supporting the movement, Lauren Lyons Cole, titled her recent informational video "How to pay taxes like the rich.")
Rose told the Huffington Post that he was motivated to start the movement because he works with many older people who regret not saving earlier, and few young people know what a Roth IRA is. Since pensions becoming less common, young people need to take the initiative to prepare themselves for retirement, he said.
"They don't know the basic fundamentals of investing," he said. "You don't need to be 35 to start saving. You have money, and it doesn't take a lot to get going."
An independent financial adviser does not benefit directly if someone opens a Roth IRA, Rose said, but advisers at large investment firms do gain some advantage for helping an investor open a Roth IRA at their company. They earn about 5 percent of every transaction or 1 percent of the total value of the Roth IRA account, he said. Some large investment firms also charge an IRA custodial fee of at least $40 a year, he said.
When speaking with a financial adviser at a large investment firm, "you don't know who you're talking to," Rose said. "It's very hard to know whether they are really looking [out] for my best interests or are they doing it just to make a commission."
To avoid high fees, open a Roth IRA at a firm such as Vanguard, Fidelity, Scottrade, Betterment or E*Trade, Rose recommended.
Just 32 percent of 20-somethings are saving for retirement at all, according to ING. Many young people are trying to pay off their student loan debt first, so that they don't have much money leftover. Young people in their 20s on average are carrying $45,000 in debt, according to a recent survey by PNC Bank. Also, wages for 20-somethings have fallen over the past decade, according to a study by the Economic Policy Institute.
But saving for retirement early on allows the interest on any savings to keep compounding. Since 1926, stocks have averaged an annual 6.71 percent rate of return and bonds have averaged an annual 2.49 percent rate of return, when adjusting for inflation, according to Maria Bruno, a senior investment analyst at Vanguard. Cash, on average, loses half of its value within about 25 years, according to the Labor Department.
Roth IRAs have the added benefit of enabling an investor to skip paying taxes on these savings upon retirement.
While some might debate the pros and cons of different types of retirement accounts, this much is sure:The chances that any one of them might yield higher returns is more likely than the odds of scoring big from buying a Mega Millions lottery ticket.