Retirement is a very distant concept for most young people. They are young, invincible, and ready to conquer the world. Why would retirement be on their newsfeed? Because research shows that one day you will retire – maybe sooner than you think. Delaying retirement to compensate for a lack of savings is a risky strategy. That is why experts agree that young adults – in as early as their 20s need to start thinking about and planning for their retirement. Investing for retirement does not have to be rocket science. Here are a few basic tips about retirement that every young person should know:
1/ The bad news first
The fact is that young people today will need to save more than their parents and grandparents did. Medical advancements are pushing life expectations to new frontiers, but that means decades of retirement time for you to fund. While your grandfather enjoyed a company pension, and his father simply died of old age at maybe 50-something, you will need to build your own nest egg and watch over it until you are 80, 90, or even 100.
2/ Procrastination will not work
While at high school or at university many of us may have mastered the art of procrastination – we may have started essays the day before they were due; stayed out too late; and left dishes in the sink for days. The truth is, many of us often underestimate the future cost of our actions today. While procrastination may have been manageable in high school, it can be a real problem and disadvantage when it comes to investing for retirement.
3/ Sacrifices made today, pay off in the future
Research also shows that a significant percentage of young adults are not saving more for retirement because they are unwilling to sacrifice things that add to their current quality of life. Instead, they want to treat themselves to instant gratification like dinners out and vacations. Stop and think – small sacrifices made today can ensure a better, more stress free future for you and your loved ones.
4/ It is in your best interest – to begin saving now and saving consistently
You will enjoy compounding interest and need to put less in to meet your goals for retirement savings. Most advisors recommend saving at least 10 percent of your income in your 20s, however, the amount should be determined by how much money you would need if you were 65 and retiring today. To put a more positive spin on this, starting earlier can be hugely profitable. This is all because of compound interest which Einstein once called, “the eighth wonder of the world.” It is the key to building wealth over time, allowing you to not only make money off what you deposit, but on what those deposits earn as well. Over long periods of time, compound interest can have a huge impact. As young investors, we are particularly well positioned to take advantage of this. For example: Imagine that you could afford to save BND100 a month for retirement. If you put away BND100 in a drawer for the next 40 years you would have BND48,000 when you retired. But if you invest the same BND100 and get an 8 percent annual return, you would have almost BND350,000 in 40 years! If you wait just 10 years to start saving and only allow your money 30 years to grow, you would have less than BND150,000. So as you can see, waiting just 10 years would cost you about BND200,000! The great thing about compound interest is that it is within your control. You do not need a Masters in Finance to take advantage of it. All you have to do is start now.
5/ Now for the good news
Planning your future has never been easier. Young people have a huge advantage over their parents: the Internet. There are so many online tools that can help you to take control of your financial future. There are Websites like Mint.com that can help you budget. These services offer some key things: Low or nonexistent minimum balances: You can start by investing with what is in your pocket right now; unintimidating language – so you do not need a translator or a Ph.D.; analytics to help you visualise your finances; and mobile functionality: You can plan your retirement without leaving your home. Yes. Thinking about investing for retirement is hard but it is extremely important. No one wants to think about getting older. Given the opportunity, many of us would stay 21 for a long time. But the simple truth is that continuing to live means that you will get older, and will most likely retire. That is why your financial future is worth thinking about. At 20 this may seem overwhelming, but it does not have to be. It begins with a single step – Start early, save wisely, and take advantage of knowledge and advice from experts – these are all ways to help you take control and plan for a better future.
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