Retirement might seem like a far off dream of yours, but it’s never too early to create your financial plan. Get started with these helpful tips.
Finding a job is any young adult’s top priority, and often the last thing they’re thinking about is retirement. The focus tends to be on paying rent, bills, and debts while trying to build a career.
Here’s a little secret though: saving for retirement early pays off in a big way due to a little something called compound interest. Einstein called it the eighth wonder of the world; he was right. Find out what you need to do today to enjoy tomorrow to the fullest.
The book How to Turn $100 into $1,000,000 illustrates how saving early goes a long way. Included in the book is an example in which one person, Jackson, saves $1,000 per year starting at age 15, and another person, Layla, begins saving $3,500 per year starting at age 30. They both earn an 8% return, invest until age 70, and hit the $1,000,000 mark. Hooray!
While they both have the same amount in the end, Jackson only had to save $55,000 (and earned $945,000 in compound interest) while Layla saved $140,000 – an $85,000 difference. It’s not always easy to see how compound interest can make your money work for you, but it does. The longer your money earns interest and that interest earns interest, the better.
Set Up A Retirement Savings Account
If your employer offers a 401(k), take advantage and sign up. They may even match contributions up to a certain percent. If this option isn’t available or you want to save more, open an Individual Retirement Account (IRA) and make your contribution automatic. If you prefer, start small and gradually increase your contributions.
When you’re young, time is on your side and you can choose investments with more risk but higher potential returns. It’s normal for investments to rise and fall over time and it’s not until the investment is sold that you lose or make money. Most retirement plans have different portfolios to suit different risk levels. Ultimately, it’s up to you to select the portfolio or investments that align with your risk tolerance.
Speak to an expert.
Financial advisors know the ins and outs of different types of investments and can help guide you in building your financial plan. Talk to an advisor about both short-term and long-term investments. Together you can determine what best fits your needs while exploring options that can get you where you’d like to be.
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