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How could one person invest $1,000 and have $5,400 for retirement, while another might have invested the same amount but only have $2,500 with no additional retirement funds saved up? Every working adult should know at some point in their career that planning for their retirement is vital, especially if he or she have any intentions of retiring early. At the very least workers should conduct some research on a few retirement options such as an IRA, Roth IRA, pension fund or even a CD account.
As retirement approaches, many pre-retirees will develop an idea of what life may be like after retirement. Perhaps you will want to spend more time outdoors or have more quality time with your family and loved ones. We all have plans we look forward to carrying out when we are no longer working, but the truth is that if you don’t start saving for retirement at the right time, you won’t have much of a nest egg to fall back on, which can only mean facing financial struggle down the road. When should you start saving for retirement? You should start as soon as possible, according to CNN Money.
The Sooner you Save for Retirement, the Bigger your Retirement Account will be
The younger you start, the more money you’ll be able to save by the time retirement age actually rolls around. And it’s not just a small percentage increase, either – it’s a considerable amount. The gains you make in each year build their own gains in the next year. Over time, this becomes exponential growth. Compound interest builds and builds.
For instance, let’s say you invested $1,000 at age 20 and your account had a 4% interest rate annually. By the time you turned 63, you’d have $5,400 in growth and have done nothing but invest that initial $1,000 way back when you first turned 20. Imagine if you had invested $1,000 a year in the same account for 10 years, or $3,000 per year for 10 years. Now you begin to see just how that interest can grow. Each year, your money grows, and then that growth builds further growth. Eventually, you have a retirement account that can fund itself without any further assistance from you, and still leave you with a sizeable nest egg for your retirement years.
Of course, starting any time is better than never starting in the first place. Whether you’re 20 or 50, start now.
Where Should I Start Saving for Retirement?
The choice of where you put your money is just as important as when you start saving. While you should start saving as early as possible, you do need to ensure that you choose the right vehicle for your investment. If possible, opt for an automatic program, such as a company-directed 401(k) plan. The reason for this is that if you deposit the money yourself, there’s always a chance that it won’t make it into the account. You might have higher bills one week, or maybe you had emergency car repairs this month. Automatic 401(k) deposits go in without you doing anything, so that money never passes through your hands.
Individual IRAs are also good vehicles for your retirement planning, because both IRAs and 401(k) contributions are tax-deferred. That means the money that goes into these accounts is pre-tax, reducing your tax penalty right now while building your financial future for retirement. You won’t pay taxes on that money until after you begin withdrawing it during your retirement years.
Start saving for retirement now. Let your money build and grow. With enough time, you’ll create a self-sustaining system. However, even if you’re only a few years from retirement, start now.