When we are in our twenties, retirement is the furthest thing from our minds. Think about it, you are fresh out of school and just starting your career. You typically have at least 40 years until you can or will retire, and that may change as medical advancements continue to help people live increasingly longer lives. Seniors are now healthier than they were even 15 years ago, and the average life expectancy continues to rise, meaning that people have to work for longer than they used to or save more to have a larger nest egg to retire with.
There are many reasons to start planning for retirement now while you’re young, healthy, and vibrant:
You might be able to retire early – if you start contributing to a retirement account now, giving it 35-40 years to grow, you might be able to retire early, depending on the type of retirement account you choose and how much interest you earn on your investments.
You won’t have to contribute as much over time – unlike those who start a retirement fund in their 50s and have to make enormous contributions each month, you can make small contributions for a longer period of time and end up in a better financial position. Getting an early start with investing can make a huge difference in how much you have when you retire. If you invest $300 per month when you’re 25 and earn 8 percent each year, then you have over $1 million by the time you’re 65. If you wait until 35 to start investing that same $300 each month, then you’ll have about $440,000. That’s less than half has much as you would have if you had started saving the same amount a decade earlier.
You’re making your money work for you – instead of working your fingers to the bone at your job, trying to make ends meet while also trying to build a solid savings account, you can start putting in small amounts now that will continue to grow on their own.
You’ll define your career goals – having a solid idea of where you want to end up financially, it will help guide you over the course of your career, so when a big decision needs to be made, you’ll know which direction to go.
You can travel more – vacations from work are never long enough. Retirement allows for extended travel, which is difficult to schedule when you’re employed full-time. Saving with this goal in mind will help you achieve it.
Circumstances may require you to retire early – Not everybody retires at their desired time. There is a chance that zt some point, you may not be able to work for one of many reasons. When you prepare your life and finances to be able to retire early, you’ll also be better off if you are forced to retire early.
If you retire at 55, assuming you will have an average life expectancy, you will need your assets to produce income for a longer period than someone who retires later. This means you need to develop an accurate projection of what you think you will spend each year and plan for the age you want to retire. Then you can compare that to the sources of retirement income you think you’ll have available to you.
Social Security won’t start until age sixty-two, and keep in mind that there are penalties and restrictions on accessing retirement account money prior to age fifty-nine and a half. This means if you retire at fifty-five, you will need to have other sources you have access to, at least for a few years.
Even though you can start Social Security at 62, there are many reasons you might consider a different Social Security plan that has you start benefits at a later age. Set your early retirement goal, this will motivate you to spend less intentionally, earn more, invest more, consume less and pay closer attention to your finances.