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This new ‘Broke Millennial’ book has secrets for young people who don’t want to think about retirement

Many millennials can’t imagine saving for retirement now, when they’re busy paying for housing, student loans, groceries and utilities, children and health expenses.

But maybe it doesn’t need to be so hard.

Two-thirds of millennials have nothing saved for retirement, according to the National Institute for Retirement Studies, and 95% are not properly saving.

Critics say these young people, who are in their mid-20s to mid-30s, would rather drop all their money on lattes and avocado toast instead of funding a retirement account or a home down payment. They’re also called entitled and lazy. The generation argues, however, they’re not as well-off as their parents were at their age, and they can’t save for retirement because they have too many other financial obligations. They’re not completely wrong, considering student debt is at a record $1.56 trillion in the country and rents and mortgages are getting more expensive.

Balancing finances for the present and the future is difficult, but starting early helps, especially with a deeper understanding of how saving for retirement works, said Erin Lowry, author of “Broke Millennial,” who wrote a sequel called “Broke Millennial Takes on Investing,” (Penguin Random House) to be released on April 9. Lowry said people should shift their perspective from “saving” to “investing,” as most retirement portfolios are comprised of investments (and thus generate better returns than stashing money in a savings account with little interest). They should all start small, trying to meet the company match for a 401(k) but settling for anything they can in their current situation. And millennials also shouldn’t expect investing for retirement to get easier as they get older and earn more, because along with a higher salary may come more financial responsibilities, she said.

Erin Lowry, author of “Broke Millennial” and “Broke Millennial Takes on Investing.”

See: This 24-year-old is on track to save $100,000 by age 25, and she has advice for other women who want to be rich

Lowry spoke with MarketWatch about how young people can prepare themselves for their retirement now — even if they may have another three or four decades to go.

MarketWatch: How should millennials approach saving or investing for retirement?

Erin Lowry: We keep saying “save for retirement” but that’s not what you’re doing. You’re investing. I can’t count how many times I’ve had conversations where I’ve asked if people are investing and they say no and when I ask if they are contributing to a retirement plan they say yes. I feel investing at any age is an intimidating thing so if you’re actually already investing it gives you a bit of a sense that you can do this and you can take control.

In terms of how people can actually get started, a lot of folks have the advantage of a traditional retirement plan and can get an employer match, which everyone says is free money. Take it if you can get it. Especially if you’re in your early 20s, where you have other financial demands like student loans and basic costs of living, you’re just figuring out how to live day-to-day, putting 4-5% away could feel like a nonstarter. Start incrementally, if that’s all you can afford, and then get the match. That should be the goal in the beginning.

Now many are self-employed or in the gig economy — I am one, myself — and I get if you don’t have a benefit like the employer match. What you can do involves setting aside money for taxes. The rule of thumb for self-employed people is putting away 30% for taxes, but my recommendation is 35% to give you a nice buffer, and then eventually kick it up to 45%. I do that for two reasons: I am saving for city, state and federal taxes, and the remainder can go in my SEP IRA. Leftover money can be put in a retirement account.

MW: Some millennials are intimidated by investing. How do you get over that hurdle?

Lowry: It makes a lot of sense why people feel that way. For me, the first step is education and that is unfortunately something we have to do ourselves because it’s not something we are taught in school and not necessarily something our parents can help us learn. It is a self-directed education. There are so many ways to learn about investing: podcasts, books, blogs, and hopefully there is a version that is interesting to you. I would recommend the first thing to learn is the basic language of the stock market. I connect this in my book to algebra: I can remember sitting in algebra class and having no idea what the teacher was saying because I didn’t understand the language of algebra, like the word coefficient. Investing is the same way. If someone says you have to align your time horizon and risk tolerance and invest in a diversified portfolio, someone may not know what that means. “Broke Millennial Takes On Investing” spends an entire chapter focusing on establishing a common language (in the least painful way possible!) when it comes to investing. Investopedia and the SEC’s Investor.gov are other favorite (and free) resources of mine.

Also learn about the history of the stock market because it is reassuring to look back at what the stock market has done and understand there are going to be troubles, there are going to be recessions and an economic cycle, but there is a way to invest and defend against that.

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MW: What do you say to millennials who say saving for retirement is out of reach for them?

Lowry: Even if you can start with a small number that’s great, because compound interest works for you. People should play with a compound interest calculator and see what it does to have 45 years of investing, instead of 35 or 30 or 20 years. It’s also critical to understand your life does not get less complicated as time goes by, so you may not have a ton of money left over to put in retirement plans now or in the future. You may make more but you may buy a house, or have kids, and those things could be expensive. Also, some people love benchmarks, some do not... for some it is motivating, and for others it is demoralizing. Take that into account when you hear that you should be doing something at a particular age. It doesn’t mean you’ve failed if you haven’t achieved that.

MW: Millennials get a lot of flack for buying lattes and avocado toast, which critics say will deter them from saving for retirement or buying a home. What do you think about this logic?

Lowry: I have a line item in my budget for lattes and for me, personally, being a self-employed person who works from home, a latte means I leave my house and talk to other people. It is a small pleasure I get in my day and I find value in that. The problem we have is we twisted what the metaphor was, and really, it is just meant to spend where you value, and that’s an important concept for a lot of people. We won’t be perfect at it all of the time but if you prioritize what you value and spend in alignment with that, it gives you more control.

Now if you’re in the situation where every dollar is spoken for but you want to make retirement a financial priority, one thing I like to do is keep track of every penny I spend for two weeks and at the end, look back on all the things I’ve been purchasing. It’s a nice way to identify a mindless spending habit. I’m not saying a latte or avocado toast. It is something you buy habitually that you don’t care about. Also, evaluate annual fees and make sure you’re getting use for anything you have a subscription to, or negotiate somewhere like with an internet provider or interest rate.

MW: What stood out to you when writing this book? Were there any main concerns millennials had around investing?

Lowry: One thing I feel does happen, because it happened to me, was getting overwhelmed about how to pick investments. The word investing can be automatic intimidation. When you get to the landing page of your account and have to pick investments — I had no idea what those terms like large cap and small cap meant. I clicked out. I think a lot of people do this and it is one thing we need to solve for, how do you make it so people who have no experience in investing sign up for a 401(k) and pick a portfolio? One of the easiest ways is to look at a target-date fund, which is a way to invest tied to an approximate year you’re going to retire and it goes from aggressive to more conservative over time. It is more expensive and a one-sized fits all approach, but investing should be personalized and highly tailored to you and your goals and risk tolerance.

Also see: This couple is one year away from having enough money to retire early — here’s what they did

MW: What would you say is overall the most important piece of advice for people when starting this journey of investing for retirement?

Lowry: This is a cliché answer but start as early as you can. I understand why that is hard and why to put it at the bottom of your to-do list, particularly if you have far more immediate financial goals, but this is also one of the best ways to prepare yourself. If you start early, even with a small amount, you get the advantages of compound interest.

I do not have a definitive number for how much I will need in retirement, but with investing, it is good to set goals. Sit down and try to think through what you want as a lifestyle in retirement. Visualize your older self — studies show that helps. Visualize an idealized life. If you could do anything with your life, what would that look like? Write that down and then from there try to make it tangible — where would I want to be living, would I want to own a house or rent? It doesn’t have to be done all at once, it could be evolving.