Young people just starting out in life may think there is plenty of time to think about retirement, but experts say you should start a retirement plan the day you take your first job. Long-range planning will leave you happier and wealthier when your retirement hits.
Why Should I Start Saving Now?
There are practical financial reasons for beginning a retirement savings while you are young.
- Long-term investments will have time to grow.
- You’ll have more time to save.
- You’ll have more to invest later.
- It improves your quality of life later in life.
- It will help pay for some increased costs.
When you start investing early, you are allowing for these investments to grow to their fullest potential. Most of the safest investments, from stocks to gold and real estate, are meant to be long-term. These assets need 20 to 30 years of growth to get the most out of their investment.
Even investing in something like Bitcoin requires some waiting. It is expected to jump in value over the next five years. The earlier you start, the more money you can make.
Starting early will require less money every week to save for retirement if you begin in your twenties, rather than trying to make up your lack of savings in your 40s or 50s by. That last-minute frantic investing will mean less money to live on and could result in some bad choices because they are made in desperation.
Those investing early will find they will have more money in the long-term that can be used to build their wealth in other areas. For instance, you can take your interest off your retirement investment and buy a franchise or real estate.
Investing at a young age will help you have a better quality of life. While others are panicking, wondering if they will have enough to retire, you will be able to live as you want.
Understanding Retirement Costs
It’s important to understand what it will cost to retire. Experts state you need to have roughly around 80 percent of your regular income coming in during retirement to keep the same lifestyle. However, many people don’t keep the same lifestyle.
Some want to enhance their golden years with doing things on their “bucket list” and that can be expensive. Others opt for a simpler lifestyle. The point is, wouldn’t it be better if you had options rather than have your lifestyle dictated by your lack of wealth?
One cost you will surely encounter are medical costs. That is the one area of expense that rises as one gets older. There are more doctor visits, more tests, and more prescriptions. Investing young means you’ll have the money to cover these increased costs.
Other Benefits of Investing Early
There are some other more indirect benefits to start investing early. These include:
- It keeps you from overspending.
- It teaches you discipline
- It helps you set your priorities.
- It reduces stress.
- It gives you another resource in emergencies or other life changes.
Studies show investors tend to have better spending habits over their lifetime. They don’t overspend and stick to budgets. That will help as you build your wealth over the decades.
Regular investing takes discipline because you must budget it. Making investment payments regularly will build discipline. That will likely also show up in other areas of your life.
Investing helps you plan for your future and that includes setting priorities. It forces you to set goals, like buying a house, and reminds you that short-term gratification items aren’t worth the long-term consequences.
Starting a retirement investment plan when you’re young will reduce stress later in life. You will not face the dilemma of worrying if you have enough money to retire and can spend your time planning your life after retirement.
Most retirement accounts allow you to loan money to yourself once a year with a three to six-month option to pay it back without federal tax penalties. This could help in medical emergencies or in case of an unexpected situation.
Most also allow you to withdraw without penalty for life-changing events, such as buying a home.
Investing can be scary if you don’t know much about it, but with research and a good investment advisor, you can make a difference in your future.