Your high school graduation is usually when it all starts – someone mentions the notion of retirement to you, and you tell your friends that you will worry about it when you graduate college… after all, you have to pay your way through school and every little helps. Before you graduate college, you fall in love, and you find yourself not only planning for a graduation but also focused on a wedding.
Not long after, you are aiming for a house – kids, and then you find yourself immersed in a car payment, while trying to save for your kids college fund.
20 years later, you are in your early 40’s and you can’t believe 20 years flew by quite that fast… the idea of saving for retirement is still somewhat fresh, but it’s not the right time to start… yet anyways. You have teenagers that are going to be driving, your insurance rates are sky high and your oldest is already putting in college applications for after their high school graduation.
You are in your early 50’s, and at this point… you realize that you probably should have made a greater attempt 30 years ago – but one thing after another, and you found it to be the wrong time.
My message: Don’t let this happen to you.
There will always be some demand for your money – there is always going to be something more important to do with your money, at that point in time. You may keep telling yourself “once I get past…. then I will….” – but in reality, things pass, new things come up and the cycle starts over and over again.
You are smart though – you may have already started something, perhaps you carried on saving for a while.. but then something interrupted your efforts and you put them on hold.
Perhaps you started, and you didn’t get the results you wanted to see – you assumed that the money would grow faster, you didn’t realize that compound interest, over time, would make it so profitable 30 years from now.
Here’s a little secret though: If you are a baby boomer, you should know that it’s up to you ;)
I started planning for retirement when I was fresh out of high school. My parents were NOT on board – they said it was too risky. A poor idea… the market is too unstable.
For me, it was too risky “not” to move forward. 20 years later, I am thankful for following my gut instincts. I may not have known as much then, but I did know that I would probably look back in regret had I not made the decision to move forward.
Here are some foolproof ways to get started in your 20’s ~
1. Save 10%: Starting to save in your 20’s, affords you the opportunity to put away a mere 10% of your income annually – if 10% sounds like too much, just remember that the number will probably go up if you wait. Automate your saving and make it an automatic withdrawal that comes out the same day every month – and try to increase by 1 or 2% each year (as you likely will have raises that can counteract that!)
2. Get your Employer’s Match: Vanguard says that 49% of the employers using it’s plans provide some type of a match (this is as of 2014 — so potentially more now that we are in 2016).. if you work for a company that falls in that percentage, then invest at least enough to earn the match. If you aren’t sure, Human Resources is a great place to ask. If your employer offers a 2% match, then you might just have to put 2% of your income into a 401K or more.. (depending on if your employer matches at a 100% rate).
3. Start a Roth IRA or 401K: I’m no expert.. but these are both great places to start. Traditional IRA’s offer tax deferred savings – which essentially means that you won’t have to pay tax on contributions made now, but you will pay tax on all withdrawals in retirement. A Roth IRA, on the other hand, is funded with after tax dollars – so it allows you to pull money out for tax FREE in retirement. The Roth is a better option if you start in your 20’s — because your income will likely grow larger between now and your retirement age (which will put you in a higher tax bracket). One of the best solutions is to start a Roth IRA, and a 401K — because you will have the diversification you need (a Roth 401K has fewer investment options).
4. Look at Companies that allow a Reasonable Minimum: When I started, I could have gone with larger companies.. but as a young 18-year old, I did not have much to offer in a start up fund. Thankfully USAA helped me begin (but I also opened with another company too) and allowed me to start with a set investment per month with $25 or $50 start up – which was reasonable for me. Once you start getting ahead and making more, you can choose another company to move to, and a funds manager that will handle your investments for you if you wish to take that route.
5. Max Out: It’s important to find out what the max contribution to your 401K is.. .. contribute enough to earn the match, then sock the rest in your Roth IRA – then top off your contributions. A Roth IRA has a maximum contribution amount as a single, but if you have an investment advisor they can keep you abreast of those details when you sit with them.
It’s scary – starting out.. you may have questions, doubts, fears – insecurities. But in the end, what’s important, is that you start.