Retirement planning isn’t just for old people – or even middle aged people. People in their 20s and more generally, young adults, can start saving for retirement too. In fact, young adults can make a larger impact on their retirement income than anyone else can – and that’s because they have one major advantage that older people don’t have: time. By having more time for your investments to increase and earn more interest, young adults can either make or break their retirement plans based on whether they save or don’t save.
My Retirement Blunder – How I Didn’t Start Saving Early Enough
Most young adults are happy to start saving for their retirement by their late 20s, early 30s. Not me. In fact, one of my biggest mistakes when it comes to personal finances is not taking advantage of retirement savings early enough. In fact, I remember talking to my in-laws during this time and telling them that I didn’t need to start saving for retirement yet. Oh, how I was wrong.
My first professional job was working for my university while I was still finishing my undergraduate degree. I was only 21 and had the best job in my life up until that point.
The job came with many perks, which I took advantage of, but I declined the retirement benefits. I was only going to be working there for a short period of time and at the time I thought I would prefer the extra cash in my savings account. What I failed to consider was that my employer offered matching funds up to a certain amount. This was my mistake. Not only did I pass up a large chunk of money in matching funds, but I lost several years of earning interest.
“When Do I Need to Start Saving for Retirement?” – The 1st Wrong Question to Ask
Most young adults ask the same question when they finally get serious about their financial future: When Do I Need to Start Saving for Retirement? This reminds me a lot of my initial approach to retirement. Here’s what my logic was:
How long can I continue to live on all of my income before having to save for retirement? I have a lot of things that I would like to buy now that I am earning some decent money at a real job, so why not put off saving for retirement a couple more years. It’s not that important since I am young, right?
While none of us want to admit to operating on this same logic, it’s what goes on in most of our brains. This question suggests that we would much rather delay saving for retirement than be pro-active and make it easier on ourselves later.
This line of reasoning (to delay saving for retirement) is also based on the faulty logic that it is easier to save later in life. Reality check: It’s NOT easier to save later in life. While you might think it is easier to save when your salary is at its peak later in life, in all actuality, one of the easiest times to save money is when you are just starting out. Here are several reasons why saving money is easiest when you are just starting your career:
- You are used to living on significantly less income
- With the exception of possible student loans, you have very few mandatory expenses as you will later in life.
- Lifestyle flexibility to keep your housing expenses to a minimum by having roommates. This becomes increasingly more difficult with a spouse and children later in life.
Instead of asking yourself when do I need to start saving for retirement, perhaps ask yourself how early can I start saving for retirement AND how much easier will it be to fund my retirement because I started so early?
“How Much Do I Need to Save for Retirement?” – The 2nd Wrong Question to Ask
The other difficult questions that young adults must answer, without adequate experience is to determine how much they need to save. Along the same lines, most young adults want to save the bare minimum. Instead of asking what is the bare minimum that you can save, try asking yourself: what’s the maximum I can save in order to make it easier for myself later in life?
By saving early in life and saving MORE, you can drastically increase the figures that are eligible for the benefits of compound interest. The more money you have in your retirement funds, the more options you have. One option would be to decrease your savings later in life when you need to pay for your children’s college education. Another option would be to retire early. While I could continue on and on, the important thing to consider is the freedom available to you later in life for making retirement a financial priority now.
Investing Tools to Help You Get Started
If you are interested in starting to save for retirement, here are two of my favorite investing tools:
Personal Capital: Need one place to see all of your assets? Personal capital is a free tool that allows investors to link all of their accounts within the same secure platform. There’s never a need to login to individual accounts again.
Readers, when did you start prioritizing saving for retirement? Do you regret not starting earlier?