When you are in your 20’s, you are likely more concerned about your weekend plans and landing your first big job than about how you’ll finance your retirement. There’s nothing wrong with this, but the earlier you start saving for the future, the better off you will be by retirement.
Financial planners have been saying for years that the wisest retirement plan is to start as early as you can. It’s up to you to make your savings and future planning a priority when you’re young so that it becomes a regular habit as you age.
With the right advice from professional financial advisors like Mountain West Wealth, you can start planning your future confidently. Let’s take a look at why it’s so important to start your retirement savings sooner rather than later.
Less Financial Strain
When you are young you likely haven’t accumulated a lot of debt or large bills. Apart from your educational loans, you likely don’t yet have a mortgage payment hanging over your head. Although your career may just be taking off and you may not be making as much money as you will in the future, now is the time that you have the most disposable income to dedicate to your savings.
The average rate of inflation runs around 3% each year. This means that once you reach retirement age, items could cost double what they do now. It’s not enough to save for what you expect. You will need to support your retirement based on today’s prices. When you start saving in your 20’s, you have more time to accumulate a retirement income that will support you at the future rates of inflation.
With the incredible advancements in medical technology, Millenials and Gen Z can now expect to live into their 90’s on average. This longer lifespan has its advantages, but it also means that you will likely be living without a solid income for a longer time.
Those that are retiring now at the age of 67 can expect to live a retired life for a maximum of 20 years on average. The next generation will need to invest enough in their retirement savings to fund 30 years or more. This means that you need to start saving as soon as you can.
If you are new to investment savings, you may not realize the power you hold in compounding interest gains. If you put money into a retirement investment through a 401k or an IRA, you can make money just on the interest paid to you. That gain can then independently make more money next year. This means that you can continually make money on your initial cash before you add to your investment.
At the rate that current Social Security funds are being used as government bailouts, there is no guarantee for the younger generations that that money will be there for them when they retire. The social security that many seniors rely on currently to pay their bills may be reduced to a much smaller amount in the future.
To help you gain an idea of where you need to get to have a comfortable retirement, we have a listing of your savings goal based on your age.
In Your 20’s
- Start a 401k or an IRA investment account
- Have medical insurance
In Your 30’s
- Pay off your student debt
- Take out a life insurance policy
- Commit to a 15% annual salary contribution to your retirement savings
In Your 40’s
- Pay all consumer debt
- Create a college fund for your children
- Have twice your salary amount in savings
The key to a comfortable retirement is to have a plan as early as possible. The more income you can invest in your future, the more options you will have once it comes time to enjoy your retirement years.