5 Reasons to Begin Saving Early for Retirement
In your twenties and early thirties, saving for retirement may be the last thing on your mind. From starting your career path and tackling student loan debt to saving for a home and possibly starting a family, it can be difficult to save without excess funds available. However, with time on your side, saving early for retirement can really set you up for long-term success.
5 Benefits of Saving Early for Retirement
Profit from Compound Interest
The earlier you invest, the longer your compound interest will work in your favor. Compound interest is when the interest that you earn in a savings or investing account is reinvested and earns you more money. For example, if you invest $100 into an account and it has an expected annual growth rate of 10%, you will earn $110 after the first year. The second year, you’ll earn $121 and $133 after the third. The compound interest amount will continue to grow and accelerate the growth of your savings each year.
Develop Strong Financial Habits
Saving money can be difficult but saving even a small amount is still saving. Even if you don’t put aside hundreds of dollars each month, putting aside what you can helps develop strong financial habits. As you see your accounts grow, it can help you realize the benefit of setting up similar accounts such as an emergency savings fund, travel fund, or house fund. You may also consider developing a monthly budget to help you stay on track and tackle your debt.
Save Little Now vs A Lot Later
The earlier you start saving, the larger your nest egg will grow thanks to the compound interest we discussed earlier. For example, if you save $475 per month starting at age 22, you will have an estimated $2.3 million at age 67. If you waited until 27 to save the same $475 per month, at age 67, you will have an estimated $1.5 million, which is a large difference. So, while you may not have the excess funds to save this amount per month, every little bit saved now helps you in the future. If you waited until your 40s to begin saving that same $475 per month, your nest egg would only be about $450,000. Starting early also means you don’t have to work as hard to save as you approach retirement.
Many employers offer employer-sponsored 401(k) plans for their employees. This is the easiest way to begin saving as the funds come directly out of your paycheck. With employer-sponsored 401(k) plans, your employer may also automatically match your contributions up to a certain percentage, so be sure to at least contribute that amount so that you receive the match. If your employer does not offer a retirement plan, there are options available such as individual retirement accounts (IRAs).
Protect Yourself from Market Volatility
Saving and investing your money into a retirement account is typically investing in the stock market, which has its ups and downs. However, by starting these investments early, you will protect yourself from some of the market’s volatility. You can handle the dips, ride out the short-term losses and even invest more aggressively to yield higher returns. As you approach retirement, you will begin shifting from growing your investments to protecting what you have saved.
Save Early for a Secure Future
Between developing stronger financial habits and building a successful future for yourself, saving early for retirement gives you a huge advantage. The earlier you start, the less work you will have to do in your later years to have a financially secure future. Retirement is possible and the team at RPCSI can help you get there. Learn more about our personalized retirement plan design by contacting us today!