Posted on: 28 March 2019
If you are in your 20s, you are likely completing your education, beginning a career, or starting a family, or maybe doing all three simultaneously. What you may not be doing is planning for the decades far in the future when you will be retired and no longer earning a regular salary.
Many young adults who are busy with the day-to-day responsibilities of life fall into the trap of thinking they have plenty of time to build up a retirement nest egg. In reality, however, each year they wait can reduce their retirement income by thousands of dollars. If you are in your twenties and haven't yet started to plan and save for your retirement years, the following proactive information may be just what you need to stop putting this important task off.
The beauty of compound interest
Many young adults excuse their lack of saving for retirement because their incomes are still low and their household budgets may not be easily stretched to include saving for something they will not need for several decades. What this type of thinking misses is that even a very small amount of regular savings can grow into a huge pile of cash with the help of compound interest.
For example, an initial investment of just $100, plus regular savings of an additional $100 each month, invested in mutual funds that earn a very conservative average of just 6 percent per year for forty years will mean that you will have at least $186,742.93 at retirement age. Just $25 per week, about the price of a few trips to the coffee shop, or a couple of pizzas, can be enough to help you retire comfortably when the time comes.
Increase your savings as your earnings increase
You may be thinking that $186k will not be enough for a comfortable retirement, due to inflation and market shifts during the next four decades. Instead of looking at that figure as the maximum you will be able to accumulate, shift your thinking to see it as the minimum amount it really is.
In reality, there will be many years when the rate on your mutual finds will go up significantly, resulting in more compounded interest for you. In addition, you will also likely be able to bolster your weekly or monthly savings amount as your income and personal wealth increases in the coming years, as well as adding in any bonuses and retirement contributions your employer may offer.
Just taking the small step of making regular retirement savings deposits now, while you are still in your twenties, will most likely make you a millionaire by the time you actually retire.
To learn more about the benefits of retirement savings and plug in more exact data about your situation, look for retirement savings software and calculators online or speak with a financial services professional, such as at Pralana Consulting LLC.Share