Life never stops coming at you. It seems like there is little time to celebrate life’s achievements before someone is warning you about the next big hurdle ahead.
Congratulations on graduating college! Have you thought about your retirement?
Many recent college graduates roll their collective eyes at this question. And why not? Retirement is so far off, right?
Well, it’s true that the traditional retirement age is somewhere around 38-42 years away for graduates in their early-to-mid -twenties, but that’s no reason to ignore your financial future.
When it comes to saving for your retirement, the earlier you get started, the better off you’ll be.
Why You Should Start Now
I have never been closer to being broke than when I graduated college. I was officially on my own, hunting for a job with a monkey on my back shaped like student loans.
And when I landed my first job, the last thing on my mind was taking out another chunk of my paycheck to pay myself when I turned 65. It’s my money, and I want it now.
But, saving is a mindset. You should save for your retirement whenever you have an income.
Whether it’s a little or a lot, get into the habit of putting money aside for your retirement. Your future self will thank you and you’ll be making strides in your personal financial maturity.
It’s simple math; the sooner you begin to save, the more money you’ll have when you decide to retire.
When you consider more complex math like compounding interest, you could actually double your retirement fund by starting in your mid-twenties instead of your mid-thirties.
Don’t wait five or ten years to start a retirement fund. Even if it’s ten or twenty bucks a month, start saving today.
What Saving Looks Like
Saving for retirement can be as simple as a standard savings account at your local bank, or it could look like a 401(k) or even an Individual Retirement Account.
You should begin with what you understand, as long as you’re saving something.
A simple savings account can be very effective, but it’s a bit too easy to make withdrawals when you’re short on cash.
You might want to use a simple savings account for your emergency fund and select a beefier retirement account for your future money.
An IRA (Individual Retirement Account) not only helps grow your savings through investing, but it helps you keep your hands off your accumulated stash by putting up road blocks in the form of taxes and fees for early withdrawals.
An IRA can potentially grow your savings much faster than a simple savings account, but understand that opening an IRA is a form of investment.
Although you can choose which types of investments go into your IRA, they’re still an investment, so there is still a chance of risk.
You should also consider retirement accounts like a 401(k), along with SIMPLE IRAs, SEP IRAs, and Taxable Accounts.
Think of it this way, if you put $200 per month into your retirement account beginning in your mid-twenties, you could be looking at (thanks to compounding interest) close to $500,000.00 by the time you retire (if the market holds true to its annual 8-10% return rate).
If you begin saving the same $200 per month in your mid-thirties, your number shrinks to approximately $270,000.00.
Avoid Bad Mistakes
When you’re considering saving for retirement, there are things to do and things to avoid. Make informed decisions. Make absolutely sure you are making the right decision for you. There isn’t a cookie-cutter answer for your personal finances.
Make sure you have a budget and stick to it. Don’t think you’ll magically retire rich without putting any thought, planning, or action in to it. Saving for retirement takes work and wisdom.
Lastly, use credit wisely and manage your finances responsibly. Don’t paint yourself into a corner by having to dip into your retirement to rescue yourself from a debt crisis.
Make the right decisions today to ensure a solid financial future.