For most young people, retirement is nothing more than an afterthought. As such, most folks don’t begin drafting their retirement plans until they approach their 40s. More than half of Americans aged 18-34 have yet to begin saving. And 42% of adults aged 35-44 still haven’t started to save for retirement.
Although making retirement plans isn't a priority, especially during the early stages of your career, you should begin to learn about how your money can work for you over the years, and it might spur you to begin saving for your retirement sooner rather than later. Beginning your retirement savings early allows you to reap the benefits of compound interest-and that’s a really good thing.
Also, remember that in the early stages of your career, it’s likely you have less responsibilities. You might not have a family or mortgage yet; thus, making it possible to save more. But honestly, the best thing you can do for your future is to learn how to start saving for retirement now, no matter what stage you are in.
If You Can, Start Saving Early
During your early 20s, the allure of money and freedom can mislead you into misusing your money, thinking that you only live once. Instead of spending money rather unaccountably , take a quick look at your monthly budget. Cut down on any miscellaneous and extravagant spending.
Saving early means you get to earn compound interest on your money for a longer period of time. For example, if you’re able to save $5000 every year at a 6% interest rate from the age of 22, you will end up with $1,063,717.57 at 67.
Pay Off Your Debts
Do you have credit card debt? If you do, you are obligated to make monthly payments to pay off this debt. How much would you save if you weren’t paying these debts?
Pay off your debts. This will allow you to save more into your retirement fund. We’ve got some tried and true processes for making this happen-so don’t assume this isn’t possible.
How much do you make and spend in a month? Experts say that the easiest way to begin saving is by evaluating your finances. A good goal is to try and save about 10-15% of your net income and, if possible, save more.
Automate Your Contributions
Instead of saving whatever remains after you pay your bills, try paying yourself first by automating the contributions. This means that even before you receive your pay check, your retirement account will deduct 10-15% of your income.
You can decide to increase the portion or reduce it depending on your financial situation. Since the contributions are automatic, you'll barely feel the pinch, and with time you might not even notice.
Alter Your Risk Based on Your Age
"Don’t try to invest in risky investments late in your career in the hopes that you'll earn a quick, hefty return." advises retirement income planning consultant, Jeff Mohlman. The potential for high returns is huge, but the risk is just as high. At the age of 50 or 60, you don't have that leeway to make such risks, but in your 20s, you can allow for some risky investments as you have more time to recover.
However, as you age, these risks become more of a liability, and they will continue to dent your finances in a way that you may never recover, because you won’t have the time you need to invest more.
Saving for retirement is the most important thing you can do for your future self. No matter what your age or stage you are in your career, investing in yourself is always a good idea. Pay off your debts, pay yourself first, and learn as much as you can about smart retirement savings and investing. Understanding your finances will put you at an advantage for life, and we can help. Contact us today to learn more about becoming debt free, developing a savings and retirement plan, and creating a better financial future for you and your family.