How to make your kids millionaires

NEW YORK (Money Magazine) -- Looking for a way to make a big difference in the financial lives of your young adult children? Help them get a head start on retirement.

They can sure use a hand. Surveys by Hewitt Associates and others show that fewer than half of people in their twenties contribute to their 401(k). And almost 40 percent of those who do aren't even socking away enough to get the full company match.

E-mail Walter Updegrave at longview@moneymail.com

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Start early, save more Want to motivate your adult kids to get moving on retirement planning? Show them how much more money they'll have by getting a good jump. Start saving at age: Contribute: 401(K) balance at retirement: 25 10% of pay $1.54 million 25 6% of pay $924,000 35 6% of pay $382,000 Source:Assumes a starting salary of $40,000, 3% annual increases, 8% annual return and retirement at 65.

That's worrisome because even more than you, your kids will find that their ability to retire comfortably depends largely on the girth of their 401(k). Fortunately, a little parental guidance goes a long way, provided that you broach the subject in the right way.

Many younger workers don't sign up for their 401(k) because the process feels too overwhelming. The last thing you want to do is add to the confusion by launching into a long lecture on asset allocation.

A better tack, says Brigitte Madrian, a Harvard economist who studies the behavior of 401(k) participants, "is to break up the process into smaller pieces."

Your first goal: Encourage them to contribute enough to get the employer match, without worrying about sorting through all the investment options. Just have them stick the money in a target retirement fund (or if that's not an option, a stock-index fund).

You can talk to them later about boosting their contribution and fine-tuning their strategy.

Your children have probably already gotten material from their employer showing how much they can accumulate in a 401(k) over their career. And they've probably blithely tossed it aside.

But as a parent, you have a better shot at getting through, using an opening line like, "Hey, I can make you a millionaire if you'll follow a few simple steps. Interested?"

Once you've gotten their attention, point to the table to the right showing how an early start and a higher savings rate can easily lead to a seven-figure nest egg.

Better yet, get your kids to run some scenarios on their own, using an online tool like Fidelity's new myPlan Snapshot, which is simple enough to appeal even to a generation weaned on MTV videos.

Answer five easy questions to estimate how much you'll need to retire; then move a few sliders to see how much you can boost your balance by saving more or investing differently.

Time involved: about three minutes.

Mom and Dad may also be able to provide a little practical help (assuming you're on track with your own retirement). You might volunteer, say, to pick up their student-loan payments for a year or two if your kids contribute at least enough to their 401(k) to get the full match.

Or spur them to do more with a "parental" match, reimbursing them maybe 1 percent of their pay if they agree to increase their contribution by two percentage points.

Clearly, the big upside here is a more secure future for your kids. But if you know that your kids are in good shape for their retirement, chances are you'll be able to enjoy your own a lot more too.

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