For many, retirement is decades and decades away. Even for people who have been working for years, retirement is often a distant thought – we prioritize other things, such as saving up for a house, our children’s college funds, and more immediate financial investments. While these things are important in their own way, preparing for your retirement is a critical long-term investment. The sooner you start thinking about your own retirement, the better off you will be in the long run.
So, when should you start saving?
The short answer to the question of when you should start saving for retirement is simple: immediately. You can never start to invest in and prepare for your retirement too early. Think about your retirement as the ultimate long-term investment: because you typically retire later in life, you have the majority of your working life to prepare for a comfortable and successful retirement period.
By prioritizing your retirement plans and investments, you can provide a better retirement period for yourself without having to worry about how much money you have, and how you spend your time.
Earning More Interest From Early Investment
You may have already known that there’s never a bad time to begin saving for retirement. But do you know why that is?
Saving for your retirement from an early age can have a significant impact on the funds you accumulate for retirement. This is due to compounding interest in your retirement account. Compounding is what happens when the money you invest generates its own money through interest. Simply put, your money earns money – and you don’t have to do a thing.
To show the impact compounded interest can have, let’s take a look at an example: say you invest $10,000 into your retirement fund, and your account has an interest rate of 5% a year. This means your investments, and the interest accumulated each year, build on each other – you earn interest on your earned interest.
After 5 years, you will have around $12,700 in your fund, with the $2,700 earned from interest alone. After 30 years, you will have earned over $30,000 just from the compounded interest from your initial $10,000 investment!
The earlier you begin to contribute, the more you will end up earning in the long-run due to the nature of compounding interest. Even contributing a small amount consistently over time can have enormous benefits and add a significant amount to your overall retirement funds.
Investing in Retirement as a Habit
In addition to having more time to save and compound interest, starting early in your life gives you the opportunity to establish contributing to your retirement fund as an ongoing practice. If you prioritize contributing even a small amount to your retirement when you start working, it will become an unconscious practice as you continue to work throughout your life in various positions. You will never miss the amount you have determined as part of your retirement fund because you will never use it in the first place.
This can be especially helpful as you begin to accumulate more financial obligations as you get older. It may become more difficult to establish a certain amount of contribution to your retirement fund as you begin to pay for more throughout your life. Starting early can turn saving for retirement into an easy habit that doesn’t feel like a burden. This will allow for better budgeting when you have more monthly payments, such as rent, utilities, and student loans. If you’ve already established saving for your retirement as a habit, you are more likely to continue contributing rather than using that money for other payments.
How Do I Start Saving for Retirement?
The easiest way to begin saving for your retirement is through plans provided by your workplace. Many companies today offer great retirement contribution plans for employees – even those who are brand new! Companies that offer retirement plans typically offer a 401(k), a Roth 401(k), or a SIMPLE IRA. Each of these plans allows you to contribute a portion of your paycheck into these accounts to accumulate funds throughout your time working.
Often, employers will match your contributions, or at least contribute some amount into your retirement fund. If you have the opportunity to open one of these plans, take advantage of it as soon as possible. The sooner you begin to contribute a portion of your paycheck, the easier investing over time will become.
If you want to start saving for your retirement but you are not yet 18 years old, you have the option to open a custodial Roth IRA with the help of a parent or guardian. This type of account is ideal for minors who have begun to work but are not old enough to open their own account without adult support. You can begin to contribute to this account in small increments, and your parent or guardian will have the ability to contribute as well. Once you turn 18 (or 21, depending on the bank or credit union you open your account with), you will have full control over the account and can choose to contribute and take out money how you see fit.
Regardless of how old you are or how far away retirement may seem, there’s never a bad time to start saving. It is completely possible to begin saving as soon as you get your very first job, and starting as early as possible puts you in a great position later on in life. If you have not yet begun to contribute to your retirement fund, now is a great time to start. Speak to an advisor at your bank to discuss opening up an account, or if you have a full-time job that offers retirement benefits, speak with a manager to see how to get started.
There’s no downside to investing in your future, ever. While your retirement period may still be decades away, take the necessary steps to get started and ensure your stable and successful financial future.