Why You Should Start Thinking About Retirement Now
You may have heard: it’s never too soon to start thinking about your retirement. But this trite bit of rhetoric doesn’t really give you the full picture, nor impart the potential impact of starting a retirement plan early in life.
Here’s an example. If you contribute a certain amount of money each month to a retirement plan from the ages of 25 to 35 and then you never contribute again, and your friend starts contributing the same amount of money at the age of 35 and continues to do so until she reaches retirement age (substantially longer than you), what do you think will happen?
When you are both able to draw money from your retirement accounts, you will have the same amount of money saved. Although your friend put in more money, it wasn’t earning for as long. If you had continued to add until your retirement, you would have ended up with substantially more money than your friend.
How’s that for a good reason to start investing now?
You may think that such an investment will require money you simply don’t have to spare, but you’re looking at it in the wrong way. Although the young amongst us often face the most living expenses (lower-paying jobs combined with buying a house and starting a family generally doesn’t leave a lot in the cookie jar at the end of the month), they also have the most opportunity to make their money work for them. They have the benefit of time on their side. If you find that you don’t have two nickels to rub together at the end of the month, think about where your expendable income is going. You can likely scrape together some cash if you cut back on eating out and entertainment.
Consider a part-time job or work-from-home option for extra income. The internet and a low cost of starting up some businesses offers you an option for earning additional funds and expensing the fees associated with working from home. Put extra money directly into a retirement account.
Consider what your company has to offer. Most businesses give the option of putting pre-tax money into a 401K. If this is possible, try to invest the maximum each month. Often, it is only a small percentage of your check (and it’s actually less of a chunk than you’d think since it gets taken before taxes…bonus: you’re paying less in taxes, too). Then see if your company is one of many that have a matching program. You may be able to get them to match a contribution of 4-6% of each paycheck, doubling the amount you’re putting in. It's free money!
Consider starting a portfolio to invest in stocks and bonds. It's easier than ever with E-Trade, Sharebuilder, or other online options, although you may want a stock-broker to offer advice and investment opportunities if you’re not familiar or comfortable with trading.
Don’t forget about a Roth IRA. It is generally considered one of the safest ways to invest for your retirement and although there is a cap on how much you can contribute each year, starting early could mean you have the monthly income you need to carry on your lifestyle once you stop working.
In short, starting early means that you’ll have a lot more money to keep you going when you retire. And since there likely won’t be any social security left to supplement your 401K, other investments could be the key to a long and happy life.