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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