3 Reasons to Start Saving for Retirement in Your 20’s
Not many millennials have even begun thinking about retirement, nonetheless started planning or saving for it. Yet the best time to begin saving for your retirement is well before it occurs – such as in your 20’s.
Ready to find out why to start saving for retirement in your 20’s? Here we discuss just three good reasons.
1: Small Payments over A Long Period of Time
When you begin saving for retirement in your 20’s, you have the luxury of saving smaller payments over a longer period versus large payments over a short period of time. If, for example, you start saving at the age of 25, even $5 a week can end up being a substantial amount.
At $5 a week for 40 years, you will have an initial investment (without interest) of $10,400. For $20 a week over 40 years – which is about the amount spent on lunch in two work days – you could end up with an initial investment of $41,600.
If you don’t begin saving until the age of 45, however, the outcome is very different. With only two decades to save, your initial investment is only half as much.
2: Builds Substantially More Interest
The best savings accounts currently are those which build approximately 7 percent compound interest per year. This are typically created specifically for retirement savings. This is, essentially, a lot of free money for just leaving your retirement money in a savings account.
In the first year alone, with a deposit of $5 per week, you’d earn $18.20 in interest. Assuming your savings account doesn’t offer compound interest (in which case the number would be greater), you could have about $3,600 – around $1,000 of which would be in interest – in just ten years. Now, imagine that over the course of four decades – or if you were able to place more than $5 a week into savings.
3: Prepared for the Unexpected
Ideally, the perfect retirement age would be between 65 and 70. This would give you plenty of time to save your money until you’d be able to withdraw the full social security amount each month. But sometimes this just isn’t possible. People suffer from health complications that make working impossible, while others are forced into early retirement by their companies.
If this were to happen between the ages of 55 and 65, starting to save early could help you postpone an early withdraw from your social security benefits. Each year that you are able to wait to begin claiming those benefits, the total monthly amount becomes greater.
As you can see, there are many good reasons to begin saving for retirement in your 20’s. With smaller payments over a long period of time you will not stress yourself as much financially during your working years. You will also build substantially more interest over the four or more decades your savings sits, and you can be prepared for the unexpected.