Retirement Advice for Students

Some time back, FMF had written about free retirement advice days sponsored by Kiplinger’s Personal Finance magazine and the National Association of Personal Financial Advisors (NAPFA). I thought of giving it a try and sent in the following question –


I am interested in finding what is the best way for students to save for retirement. I am looking at two specific cases

1) A student (grad/undergrad) who is a US citizen
2) A student (grad/undergrad) who is a not a US citizen and is here on an F1 visa.

Usually in both these cases, we do not have a very steady job or a good stream of income and work on assistantships or part time jobs in or around the campus. International students are limited to 20 hours of work per week. Any advice appreciated.


I was not sure if I should really expect a response. Even if I did receive a response I thought it would be a cookie cutter mass response that would probably not be very relevant. I was pleasantly surprised last week when I not only received a response from a NAPFA Registered Financial Advisor (name withheld to preserve anonymity), but also that he had taken the time to provide customized advice. I hope some of you that are still students will find this advice useful. (If you are wondering why you should save for retirement while you are still a student, you might want to read this first.)

First of all, I think it is absolutely wonderful that you are interested in getting people started on saving for retirement. Starting early is actually the most important factor in accumulating an adequate retirement fund.
Some general comments:

1. BEFORE saving for retirement, they generally should eliminate high interest consumer debt and establish and emergency fund equaling at least three months of expenses in a safe liquid investment (such as a money market fund).

2. They should educate themselves on the basics of investing. In my opinion, that should include the topics of asset allocation, diversification and the impact of costs and taxes. An excellent book to begin this education is "The Random Walk Guide to Investing" by Burton Malkiel.

3. Some excellent specific fund choices for beginning investors are the STAR and Target Retirement funds from Vanguard. They offer instant diversification, appropriate asset allocations and very low costs. The difference between them is that the STAR Fund has a $1,000 minimum while the Target funds have a $3,000 initial minimum. A great strategy for anyone who does not yet have the $3,000 minimum would be to purchase the STAR fund and then transfer into a Target Fund once they have accumulated $3,000. The wonderful thing about the Target funds is that the allocation automatically is more aggressive when the investor has a long time horizon until retirement and becomes more conservative as they get closer to retirement. In other words, they have a higher percentage in stocks when the investor is young and shift more towards bonds as they get older. There are no sales charges and the ongoing expenses are very low. Over the long run, that means that the investor keeps more of the earnings. These funds can be purchased directly from Vanguard through their website

4. I highly recommend Roth IRA's for anyone that qualifies. I would assume that most of the people in question qualify (adjusted gross income less than approximately $100,000).

5. It is hard to give specific advice for non-US citizens. It depends on the laws of their country as well as the agreements between their country and the US. However, if they are able to save in US mutual funds, the Vanguard funds are a great choice.

Hope that is of help to some of you student readers out there!

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