As a young adult, retirement seems so far away that it probably hardly feels real. This is one of the most common excuses young adults usually make when older people ask them why they’re not saving for retirement. However, when you ask people nearing their twilight about their thoughts on retirement, one of the most common statements they have is that they wished they had started sooner.
Anyone near retirement age will probably say that the years slipped by. That said, if you don’t want this to happen to you, the best time to build a nest egg is today, especially if you want to have a more comfortable retirement later on. Here are some other reasons why saving for your retirement early on is a good idea.
 |
| Image by frimufilms on Freepik |
You Won’t Have to Rely on Your Social Security Benefits
As great as social security benefits are, they are not entirely reliable. In the United States, most adults are subscribing to Social Security while at the same time, there’s a decrease in population growth. This means that Social Security will be paying out more than what is coming into the program, which also means that there’s a high chance that some people won’t be getting their benefits if things go awry.
It’s a grim thought, especially nowadays, that more and more people are relying on their Social Security benefits as a cushion when they retire. As for you, do you want to rely on something unreliable for your retirement? If you start saving for retirement on a different account like 401k, you won't have to. You’ll probably have your Social Security benefits in the future, but it’s still a wise thing to prepare for this possibility.
If you live in Australia, you can also rely on Social Security benefits and 401k. However, if you’re planning to use SMSF, finance experts encourage seniors or incoming retirees to get smsf advice Newcastle, Perth, or Melbourne-based administrators or providers to learn more about the rules and regulations for this superannuation fund.
You Have More Time to Save
Of course, when you start early, you have all the time in the world. This means you can afford smaller amounts regularly rather than save up a lot of money in a shorter time. Over the years, the small regular contributions you had during your younger years will start to inflate, and you’ll be able to enjoy retirement more comfortably.
Here is an example of a pretty common scenario.
Let’s say that a 25-year-old worker with a $30,000 monthly salary regularly saves up at least 6% of his salary to his retirement fund. Once he gets to 60 years old, he’ll have $756,000 saved up. 6% is too small, but it’s okay since he has a lot of time. However, if he wants the same money during his 60s but started at age 35, he would have to contribute 8% of his monthly salary and 14% if he starts at 45. In short, the earlier you start, the more you have time, and the easier it will be for you to save.
Take Advantage of Compound Interest
One of the biggest benefits you’ll have when you start saving early for retirement is your access to compound interest. In a gist, compound interest is the amount of money you’ll gain when you keep your money in the bank or as an investment.
That said, if you start early, you’ll have more money since you have more time to let your compound interest stack up. For example, if you invest $100 in an account with an increase of five percent every 12 months, you’ll have $105 after the first year ends. In the next year, you’ll have another 5% in return, amounting to $110.25 after two years of your initial investment.
Account for Inflation
Inflation is a word commonly thrown when it comes to economics, but it also has a huge effect on your retirement in the future. Inflation is a reality that we must face and take into consideration during our retirement years.
That said, people who start saving early for their retirement will be able to comfortably keep up with the pace of inflation in the future since they are more financially comfortable during retirement. In short, the bigger your cushion is, the safer you’ll be from inflation.
Avoid Debt
One of the most common problems of retirees is debt. It would suck if you manage to save up a little for your retirement, only for it to be washed away due to debt. Also, dealing with debt during retirement is more of a challenge because of your reduced income.
That said, if you don’t want your money to be stolen by debt in the future, you might want to ensure that you will be financially comfortable during your retirement years by saving very early on. This way, even if you’re still paying for debt during your retirement, you can still be financially safe because of the huge cushion you made for yourself.
Final Words
The sooner you begin saving for retirement, the more financially safer you’ll be. When you start early, there are many things that you can afford later on, especially given that you’ll be enjoying compound interest. You know what they say: the early bird always gets the worm.
Comments
Post a Comment