Introduction
Saving for retirement is something that you should start as soon as possible. The earlier you start saving, the more compound interest will work in your favor and the more time you’ll have before retirement rolls around. Say’s Vincent Camarda, but it’s also true that most people can’t set aside a huge amount of money each month when they’re just starting out in life—especially if they’re paying off student loans or struggling to save for a home purchase. So, what’s the best way to save for retirement when you’re young? Let me explain with some pro tips:
You’re young and invincible. Save for retirement? That can wait.
You’re young and invincible. Save for retirement? That can wait.
You think you’ll be rich when you’re older, so why bother saving now? You’ll just spend it all anyway!
Your earnings potential is high, but your savings rate is low.
The importance of saving for retirement in your 20s
If you’re in your 20s, it’s important to consider how much money you can save by the time you hit retirement age. The earlier you start saving and investing, the more time your investments have to grow. The longer they grow, the more powerful their impact on your overall net worth will be over time–and this is especially true when we’re talking about compound interest.
The longer we wait before putting money into savings accounts or investment vehicles like mutual funds or ETFs (exchange-traded funds), the less effective those investments will be at helping us reach our financial goals–even if we end up making larger contributions later down the road.
Your free time and energy are high, but your paid work experience isn’t quite there yet.
Your free time and energy are high, but your paid work experience isn’t quite there yet. You may have a lot of free time and energy, but if you’re not able to get a good paying job, saving for retirement can be difficult.
The chance of a market downturn today is relatively high; the market’s not going to get more stable in the future.
The market’s not going to get more stable in the future. The chance of a market downturn today is relatively high; it’s not just something that happens every now and then, like a drought or an earthquake. And if you don’t save for retirement now, there’s no guarantee that things will get better later on–you might even end up saving more as time goes by because your income increases.
The longer you wait, the harder it becomes to catch up on lost savings. If you start saving at 25 and invest $1,000 per year until age 65 but stop contributing at 40 years old when your portfolio is worth $50k (assuming 7% annual returns), then it will be twice as hard for you to reach $100k than if had kept contributing until 65 years old with no change in investment strategy or amount saved per year ($2K instead of 1K).
Conclusion
The takeaway is that saving for retirement in your 20s is a good idea. If you can’t do it now, start as soon as possible and keep at it. Start small by setting aside just $20 per month from your paycheck, but make sure to put that money into an IRA or 401k account so that it grows over time with interest!
