At What Age Should You Start Worrying About Financial Planning
As a young adult, retirement seems far away. And while it is far away, that doesn’t mean you should put off saving for retirement.
Starting to save late in your career means that you may not save up the amount you need to sustain your lifestyle. If you’re questioning when you should start investing for retirement, the answer is simple. You should be saving for retirement as soon as you can!
If you’re beginning your retirement savings journey, you’ve come to the right place. Follow along as Hafen Buckner explains the importance of saving for retirement early in your career, as well as the easiest ways to get started.
When to start saving for retirement
There’s nothing more exciting than landing your first real job that brings home a paycheck. But you should be setting aside a portion of your take-home pay for retirement — as early as your early 20s. When possible, consider contributing 10% of your income each month towards retirement.
Although retirement may be more than 30 years away, the more you save upfront, the more time that money grows due to compound interest. Compounding refers to the gains made from your retirement savings generating their gains over time.
The earlier you begin saving for retirement, the longer you can take advantage of this wealth-building tactic known as compounding.
To help demonstrate this concept, let’s consider these two scenarios. If your goal is to hit $1.7 million by 65 for retirement, you need to set aside $486.97 a month starting at age 25, assuming an 8% rate of return.
However, if you put off saving towards retirement until the age of 35 and have the same goal of $1.7 million, you need to contribute $741.10 a month to save the same amount with an 8% rate of return.
By investing in yourself early on, you’ll benefit from compounding and reduce the burden of saving later in life.
Even if you cannot contribute hundreds of dollars towards retirement each month early in your career, that shouldn’t stop you from saving altogether! Determine what you can comfortably put towards retirement — something is better than nothing so you can reap the rewards of compound interest.
How to start saving for retirement
To get started, determine what portion of your paycheck you can comfortably contribute towards retirement each month. Once you have that number determined, there are two ways for you to get started.
The first is utilizing an employer 401(k) plan, if available to you. Many companies offer a 401(k), and a company matches up to a certain percentage. At a minimum, you should be contributing whatever your company matches to maximize your savings potential.
If your employer does not offer a 401(k) or you want to maximize your retirement savings, you can also open a traditional IRA or Roth IRA. This will allow you to take advantage of compounding versus keeping your savings in a traditional savings account.
Once you’ve determined where you’re going to fund your retirement savings, you can set up automated contributions each month and watch your retirement account grow.
If you are looking to get started with retirement planning, Hafen Buckner’s team of Certified Public Accountants can assist you through the process. We are your all-in-one personal financial planning resource.
If you’re overwhelmed with the amount of information out there, don’t hesitate to contact us with your questions about retirement savings plans.