Why It’s Important to Begin Retirement Planning at a Young Age

Retirement planning can help lead you to a more peaceful and stress-free life down the road. For most, retirement is the elusive age where one can finally relax and reap the benefits of decades of hard work. In that regard, retirement planning can be seen as the process of setting short- and long-term objectives, and analyzing the resources at your disposal to accomplish them.

Why young adults should start saving for retirement

Recent studies have shown over two-thirds of 18-44 year olds have not started saving for retirement. This is a missed opportunity because the earlier you start saving, the longer runway you have to enjoy the benefits of compounded returns. In other words, you allow your money to work for you. And it’s not just about the future – saving for retirement also offers a chance to reduce your tax bill in the present.

For college grads entering the workforce there can be some road blocks along the way after. Student loan payments may eat up your budget and leave you with nothing to save in a 401(k) or IRA. It can also be hard to find a first good job right out of college.

Some people neglect to save for retirement because they never see themselves retiring in the first place. Regardless, it is wise to prepare yourself for a day when you might not (or be able) to work. Having a retirement plan gives you options. By starting to save early and often, you will likely become more self-sufficient and have control over your life.

Start earlier, save less along the way

Let compound interest work in your favor. Compound interest is the process of your money earning its own money. That is, earning interest, dividends, or capital gains on your deposits, which then grow over time in a sort-of virtuous cycle. The amount you need to retire depends upon many factors in your life. One must take into account the factors which may affect you; the cost of living during your retirement, where you retire, how healthy you are, and what kind of lifestyle you plan to live. There are many ways to achieve this with a few steps.

By starting to save early (and often) you enjoy the benefits of compounding returns over decades. Generally speaking, this means you need to save less each month if you start saving in your 20s, versus someone who doesn’t start saving until their 40s.

Lower your tax bill

Putting part of your paycheck into a 401(k), 403(b), TSP, or IRA is an easy way to reduce your tax bill.

When you have tax money taken from your paycheck and placed directly into a 401(k) or 403(b) those monies do not get taxed. Did you know self-employed folks and 1099 contractors can take advantage of tax-deferred retirement savings, too? While they may not have a 401(k), self-employed people have options like a SEP IRA to save for retirement and lower their tax bill at the same time.

Save with a purpose

Retirement is not the only the important thing you will need to save for in your life. Establish an early habit of not spending 100% of your paycheck, so you can save for other goals like a home, college, or starting a business.

The Bottom Line

Regardless of your views on retirement, establishing an early start on saving for your future gives you a big advantage. The younger you start saving and investing, the less you have to work today to begin building a more financially secure future. Finally, compound interest allows for growth and makes for a big positive change.

Contact a Taylor Hoffman advisor today to get started on your retirement savings plan!

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Disclosures1:

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Taylor Hoffman is an SEC registered investment adviser with its principal place of business in the State of Virginia. Any references to the terms “registered investment adviser” or “registered,” do not imply that Taylor Hoffman or any person associated with Taylor Hoffman have achieved a certain level of skill or training. Taylor Hoffman may only transact business in those states in which it is registered /notice filed, or qualifies for an exemption or exclusion from registration /notice filing requirements. For information pertaining to the registration status of Taylor Hoffman or for additional information about Taylor Hoffman, including fees and services, please visit www.adviserinfo.sec.gov.

The information contained herein is provided for informational purposes, represents only a summary of the topics discussed, and should not be construed as the provision of personalized investment advice or an offer to sell or the solicitation of any offer to buy any securities. The contents should also not be construed as tax or legal advice.  Rather, the contents including, without limitation, any forecasts and projections, simply reflect the opinions and views of the author. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change without notice. There is no guarantee that the views and opinions expressed herein will come to pass.

This document contains information derived from third party sources.  Although we believe these third party sources to be reliable, Taylor Hoffman makes no representations as to the accuracy or completeness of any information derived from such third-party sources and takes no responsibility therefore.

Taylor Hoffman is not a Public Accounting firm, and the information contained herein should not be construed as tax advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their tax advisor for more specifics.

Taylor Hoffman is not a law firm, and the information contained herein should not be construed as legal advice. Rather the contents included are a reflection of the view and opinions of the author. There is no guarantee that the information provided fits every situation, and individuals should consult their attorney for more specifics.

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