you're not too young to save for retirement
Posted : August 12, 2009
Last Updated : December 17, 2015
As a student or recent graduate, retirement is probably the last thing on your mind. How can you even think about saving for retirement when you need to purchase a new outfit for your date this weekend or buy the latest model smart phone, right? Yes, you are only young once, but keep in mind that time waits for no one. Years pass by quickly and before you know it, you'll be at retirement age and will need sufficient funds to support your golden years. Use these tips to start saving for retirement now.
Start Saving Early
As soon as you start making money, start saving it. Even if you are a student working part-time and can only save $20 a month, do it. Not only can you can accumulate more savings over a gradual period of time, but the power of compound interest is increased the sooner you start to save. In other words, the longer you wait, the less your savings will grow. Here's an example of investing $100 per month at 5% compounded quarterly (source: sheknows.com):
If you start saving when you are 20, you will have $152,410 by age 60.
If you start saving when you are 30, you will have $83,525 by age 60.
If you start saving when you are 40, you will have $41,175 by age 60.
Quite a big difference, huh? You should start saving early so your money will work for you instead of you having to work so hard for your money.
Determine How Much You Can Save
As a student or recent grad, you probably don't have a very big budget in order to save much money. That's okay; don't let that deter you from saving at an early age. Don't fall into the mindset that you will be able to afford retirement savings more easily in ten or fifteen years because by then, you may have a mortgage, kids, etc. Save what you can now and increase that amount as you are able. Many retirement advisors recommend saving by the "half your age" rule. So, if you are in your teens, save 5% of your earnings each month. If you are in your twenties, save 10% each month and so on. If you are completely broke, you may be able to increase your savings potential by cutting corners in your budget.
Contribute to a Retirement Plan
One of the best ways to save for retirement is to contribute to an employer retirement plan such as a 401(k). Under a 401(k) plan, you can invest a certain percentage of your salary (within limits set by your employer) into an account each month. The money that you invest into the account is not taxed, and many employers will match a certain percentage of your contribution. Your money is invested in a mix of areas that you choose (stocks, bonds, money market accounts, etc.) where it can grow. Be sure to work with a representative from your employer's 401(k) provider in order to pick the best options for your needs. If your employer does not offer a 401(k) plan, contribute to a Traditional IRA or a Roth IRA.
Whether you work with an investment professional or manage your investments on your own, it's crucial that you be well-informed. Do your research and read books, magazines, the Internet, etc. to gain as much knowledge as possible about investing in retirement plans.
For more specific information about saving for retirement, speak with a retirement plan advisor.