When Should You Start Looking into Your Retirement Plan?
When you get your first full-time job after college, retirement can seem lightyears away. In the early stages of establishing your career, the idea of planning for the time when it comes to an end can feel like skipping to the final page of a book before you’ve finished the first chapter!
Reaching those “golden years” and starting to settle down is too far down the line to be concerned about in your 20s... right?
Definitely not!
Over the years, we’ve found that many people misunderstand the key factors in building retirement savings. These are simply Time and Planning.
Establishing a solid retirement plan is the only way to make sure that you even have the opportunity to retire. While just about half of adults ages 18-34 aren’t saving for retirement at all, according to CNBC Make It, this is not one of those times to go with the crowd. By waiting to start preparing for retirement, you only limit the potential savings. The earlier you begin planning, the better off you’ll be when it comes time to put your feet up and relax.
Remember, retirement is an investment, not an expense. The longer your retirement contributions rest in your account, the larger they grow in value. Adding to your chosen retirement fund early on can be startlingly more effective than contributing even larger amounts later in life. The payoff of starting just a bit sooner can be astounding!
Let’s go through a hypothetical example...
As explained by Vanguard in this helpful article, imagine that starting at the age of 25 you invest $10,000 annually in a 401(k) account. After 15 years, at age 40, you stop saving and decide not to touch your retirement funds again until you’re 65. At the same time, your friend Sally chooses not to begin investing in her 401(k) until she is 35 years old. Sally then begins putting $10,000 towards her retirement every single year until she retires.
By the time you both turn 65, Sally will have invested $300,000 over 30 years compared to your $150,000 over just 15 years. And yet, you will have over $200,000 more in retirement savings than Sally simply because of compound interest! With both a smaller investment AND fewer consecutive years of saving, you may end up with a much greater return simply because you started saving earlier. This hypothetical illustration assumes an annual 6% return. The illustration doesn't represent any particular investment, nor does it account for inflation. All investing is subject to risk, including the possible loss of the money you invest.
Now that we’ve thrown a bunch of numbers at you, you may be wondering how to get started.
To make sure you have the best plan for your lifestyle, you have to know your savings goals and options like the back of your hand. From the type of account you use to the savings plan you put in place and all of the little decisions in between, the combinations are truly endless.
To be honest, the best option for you can depend on a ton of different factors, so there really is no “right” or “wrong” way to save. A great place to start is finding out what your employer offers in a 401(k) or 403(b) plan, if it’s offered. You can then compare that plan to some other options, like a traditional or Roth IRA, and see what fits you best. Many of the people we work with use a combination of all of these retirement savings and investment options!
The process of honing in on the right retirement plan can seem overwhelming, but that’s exactly why our team offers retirement planning and wealth management services. Creating a retirement plan requires a lot of heavy lifting that we can help take off your plate!
We work side-by-side with you to determine your retirement goals and a sustainable plan for making them happen. Our team is passionate about making sure each and every client has a personalized retirement plan that helps them have a seamless transition into their “golden years”!
Contact us today to get your custom plan started. We can’t wait to work with you.
