I know what you’re thinking: “ Planning for retirement? But I’m barely twenty years old! I can hardly pay for college, and you’re telling me I should start saving for something that’s fifty years down the road?”
Yes. Although you may not be able to see the benefits now, you do not want to look back and regret not making the crucial decision to put money toward retirement. Besides, you’d be amazed where your money goes now—into the temporarily “important” things—as opposed to into your bank account. Here are eight reasons why planning for retirement at a young age is so important for you.
1. You’ll worry less later.
Our lives seem to revolve around worry. But what if you could knock out a good chunk of your financial worries? Saving early for retirement puts less pressure on you now because you’re looking so far down the road. When the time comes to withdraw your savings, you won’t have spent the remaining years madly scavenging for money to put toward your retirement. It’s a win-win situation.
2. Two words: compound interest.
Here’s a small-scale example to show you how planning for retirement works. Let’s say you invest $500.00 into your retirement fund when you’re twenty. If you only put $500.00 a year into your retirement fund that offers a 5% return for five years, you’ll be able to withdraw $2,900.00 as opposed to $2,500. That’s a $400.00 dollar difference in only five years. The way this works is that you don’t withdraw your interest earnings from you savings and then add them to the previous year’s amount. That way, when your savings grows, the return interest grows as well. And that’s only an example. Imagine if this went on for forty-five years with a larger investment. Presumably, the older you get, the more money you should be able to put into retirement. Imagine how much that could mean for you in the future.
3. Two more words: no taxes (when you withdraw).
Really. You don’t pay any taxes on the money you put into your retirement fund when you withdraw. This only applies to a Roth IRA. More on that later.
4. Today’s investments may have opportunities that tomorrow’s won’t have.
If you know anything about the market and inflation, you know that things can change literally overnight. Why wait until tomorrow to do what you could do today? You may have better opportunities now than if you continue to wait on planning for retirement.
5. You’ll learn good money habits.
Life is full of choices. Splurge on a shopping spree…or save money? Buy that pizza…or save money? If you sit back and review your spending habits, you may find that you’re just throwing money away on temporary “needs.” If so, it’s time to learn some discipline and put your hard-earned money into something permanent.
6. You’ll have a more secure future.
Financial problems cause tension. They make individuals panic and make decisions they wouldn’t otherwise make. Not planning for retirement has consequences not only for you but also for people that you love, too. I’m not saying that having money stowed away will inherently wipe out any potential life problems. But it will show maturity and stability on your part to handle what life throws at you.
7. You won’t be able to touch it until the designated year of release.
If you have money lying around in your wallet or easily accessible in your checking account, you will probably spend it, no matter how good your intentions might be. When you put the money into your retirement fund, you are committing it to only one purpose. And if you even so much as think about trying to withdraw it, there’s a hefty penalty to change your mind.
8. You won’t have any excuse to be under someone else’s control down the road.
Imagine in the future if you have only a little bit of money saved for retirement. What will you do? You may have to either keep on working odd jobs or apply for welfare. Unless you find yourself in a fortunate enough situation in which you have a rich relative that lets you spend all their money, you should probably choose to take control of your finances and your life.
By now, you may be convinced that saving and planning for retirement early is right for you, but are wondering how you should start going about this whole saving thing. Don’t worry. I won’t just throw out a few reasons to plan for retirement and leave you hanging. Here’s how to do it effectively.
1. Open a Roth IRA.
Start saving as much as you can a year—starting by the time you’re twenty. This is how compound interest works with the most benefits. You may not be able to save thousands of dollars for a few years (you do have college and other things to pay for), but you’ll be teaching yourself to plan ahead. Setting goals is better than hurling headfirst into life without a game plan.
2. Start putting a percentage of your earnings toward your retirement fund once you start earning a steady paycheck.
This should be about 10% annual income for retirement. It’s different for everyone. Make the decision that is best for you. But be sure to set a percentage and stick with it.
3. If your job offers benefits, take advantage of them.
Jobs with benefits go a long way. Look out for jobs that offer a pension plan or other benefits. However, every job is different, and some jobs may not even offer you benefits. But this is not about just going out into the workforce to choose a job based solely on its retirement benefits. You may find a quality job you love that has no employee benefits at all. Saving for retirement is all about your personal preparation, and most of the time, you will have to rely solely on your own savings. Educate yourself and be ready for anything.
4. Invest in stocks.
This can also be done through IRAs, so, again, educate yourself and talk with your bank to decide on a plan that is best for you.
5. Don’t try to live your parents’ life too soon.
If you listened to nothing else I said, please listen to me on this one. Young people leave college with big dreams and small paychecks, and they want to buy all kinds of stuff that they think is necessary to live the American dream. Why? Because that’s the way they’ve been accustomed to living their entire lives. However, most forget that their parents probably didn’t start that well off. They saved for years. Think back to your childhood. Even if you weren’t aware of it, your family was probably not always living the comfortable life they may be leading now. Live below your means and gradually work your way up.
Now it’s up to you. Planning for retirement at an early age is against the norm of millennial thinking, but it’s the route that you need to take. I encourage you to sit down and think hard about what you want in life and where you want to see yourself in the next few decades. Once you have a game plan, you can really live life to the fullest. And remember: saving is not at all restrictive. It’s liberating.