You should start saving for your retirement when you are young
A lot of people spend their 20s spending money as they get it, for necessities like food and rent or for luxury items that they don’t really need. In their 30s, they may have moved up to home ownership, but they’re still spending all their money on their mortgages, their children and travels.
By the time they’re in their 40s, people start to worry. They have been doing the best they can, and they start to realize that they don’t have much more time to plan a quickly approaching retirement.
You don’t have to be that person, wondering what you could have done differently. All you need is a plan and the discipline to carry it out. After a while, your actions will be habits and you won’t miss the money you have been squirreling away for later.
You can’t work forever
Even if you’re in perfect health, you will probably only be able to work about 25 to 35 years. A lot of companies want to replace the older workforce with new people who can start from the bottom of the pay rung. Finding a job in middle or old age is difficult.
And you really don’t want to work forever. After a lifetime of giving the best of yourself to a company or job, you deserve the time to spend doing what you want.
Since your time at work is finite, you need to keep in mind that every dollar you spend is a dollar you won’t have for later, and there is only a limited amount of time to collect dollars.
Make your money work for you
When you start out, seek advice from your parents and an investment professional. Build a relationship with your bank, and work with them to find the best plan for you. There are several ways to build your retirement income without doing any physical work, depending on your circumstances. These means include dividend accounts like stock and real estate.
The easiest way, for someone who doesn’t have much money yet, is to put your money into an interest-bearing account of some sort. While this won’t generate a lot of income, it is a place to start.
The Power of Compounding
Saving early has the advantage that the money you save earns interest, and then you earn interest on the interest.
Take for example three young men, Jack, Joe and Jim. Jack starts saving by the time he was 25, so he had 40 years to save. Saving only $5,000 a year with a 6% annual return, he will have $825,000 when he turns 65. He only has to invest $200,000 of his own money to do this.
Consider Joe, who doesn’t start investing until he is 45. He invests $100,000 of his own money, and only ends up $200,000 on retirement. By age 65, he has far less month in his retirement savings than Jack.
Now look at Jim, he puts in $5,000 each year between age 25 and 45. Similar to Joe, he contributes $100,000 to his retirement savings. His portfolio continues to grow even after he stops adding money after 45. By his retirement at age 65, he has $641,000 in has account.
Of course, these are hypothetical cases and actual results may vary. However, this is proof that compound interest is your friend. Even if you go through a rough period where you can’t save for a little while, the money you have tucked away will continue to grow.
No matter how old you are, it is always a good idea to plan your retirement as soon as you could. You don’t want to be the one like Joe in this example, right?
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