If you’re in your twenties or early thirties, you might have student loans, rent (or even a mortgage), and bills. You might have just started a family or you are thinking about starting one. With all of that on your plate, retirement can seem like a too-distant target to even bother worrying about right now. You’ve got enough to deal with already and there’s always time later, right? Wrong. Retirement planning is more important right now than you might think and the longer you put it off, the more difficult it becomes. Here’s 5 reasons why you shouldn’t wait a second longer to start planning for your retirement:
#1 Retirement Planning Gets More Expensive as You Go
If you start putting aside a couple hundred bucks each month from the age of 25, you’ll be able to achieve your retirement goal with a lower monthly burden. To reach that same exact retirement goal when starting at, say, the age of 40, you’ll have to fork over a larger portion of your income each month. That’s because you have given yourself less time for retirement planning.
No matter how many financial responsibilities you have now, maneuvering your budget to put something toward retirement each month will help keep the burden of saving for retirement at a manageable level.
To put that in more quantifiable terms, studies have found that people who start saving at 25 only need to put 15% of their income into retirement. By comparison, someone who starts at 44 will have to set aside 44% (or nearly half) of their income in order to achieve the same results.
#2 Retirement Fund Trumps Your Kid’s College Fund
Yes, it sounds harsh but it’s true. If you take a moment to think about it, you’ll realize your retirement fund is actually more important to your children than their own college fund is and here’s why:
If you reach retirement age without a sufficient nest egg to live on, who do you think is going to end up supporting you? It’s almost always the children who are left with the financial burden of caring for their parents.
If that happens, you will most likely become a burden on them right as they are trying to take care of their new families and save up for their own retirement. Your refusal to secure your own future could mean the ruin of their future as well when they are forced to make tough sacrifices in order to care for you.
In case that’s not enough, consider the fact that it will be much easier to save for both retirement and a college fund if you start early enough that you only need to contribute 15% or so to retirement. So retirement planning early is better for both you and your children!
#3 The Earlier You Start, the More You Can Save
Not only is the burden on your monthly budget much lighter the earlier you start retirement planning, but you have the opportunity to save more. There are a few reasons for this:
- You can afford to make a few higher risk, higher reward investments since you will have time to recover from them if they fail. And if they don’t fail, you’ll have stronger growth than you would with a more conservative investment plan.
- You’ll earn more in compound interest on any savings.
- You’ll have some more wiggle room to work toward a higher goal. In other words, instead of just saving up to live on a percentage of your current annual income or even just matching it, you could plan to exceed it and spend your golden years in luxury.
The earlier start retirement planning, the more options you have for setting better goals and achieving better results. You don’t have to just get by in retirement, you could plan to really live out your dreams.
#4 You Can’t Rely on Your Employer Anymore
Less than half of employed millennials (aged 18 to 29) today have an adequate 401(k) or other retirement savings option offered by their employers. For comparison, about 2/3 of people aged 45 to 64 are blessed with an employer offered retirement plan.
If you’re young, your thought process might be something like “I’m young. I just started my career. I’ll just wait until my company offers a 401(k) or I land a job that comes with one.” However, this is starting to become wishful thinking and it’s not worth risking your future by putting retirement planning off until some unknown time when it will be easier.
Take retirement planning into your own hands now and if you have the opportunity to get on an employer plan later, great, add that into the mix. What you can do is open up an IRA today and start contributing to it. If you get a 401(k) later on in the game, develop a strategy for juggling both of them.
#5 You Could Retire Early if You Wanted
If you start saving early and commit to it, you could realistically achieve your retirement goal faster and earlier than you would otherwise. If you are 25 now and wanted to retire at 45, you would need to make higher monthly contributions (probably somewhere around half of your monthly income).
The tradeoff for that kind of discipline is the ability to break out of the grind and spend more of your life pursuing your passions and dreams without the stress of financial trouble.
Whatever age you are at now, it’s time to start planning and saving for your retirement. If you are barely 18 years old, you would still benefit from starting now and needing to save even less than 15% of your income! So take the time now to develop a workable retirement plan. There are a lot of financial tools out there to help you. The sooner you start, the easier it will be to save and the better your retirement will be!