If you’re like most young people, you haven’t put much thought into retirement savings. In fact, about 12.5% of millennials figure they’ll work until they die.
The problem with that is the unexpected. Old age often comes with physical or mental health problems. Often these problems make it impossible for the individual to work.
When you’re young and healthy, you assume you’ll be that way forever. The sad reality for most people is that they’re not.
Saving for retirement is easier and more effective over the long term. We’ll show you why with these 3 reasons to create your retirement savings plan ASAP.
It doesn’t matter whether you plan to put your money into a 401K or one of the many types of IRAs. They all have the same critical component. You put money into them on a regular basis to help them grow.
Let’s say you put $100 a month in an account starting at age 40. Your friend puts $100 a month into an account starting at age 30.
With interest at a steady 8% which one of you will have more at age 60? You will have $59,000. Your friend will have $147,000! He ends up with more than double the money for starting earlier.
Because of compounding interest, time is an important factor in retirement savings. The earlier you start, the less financial burden you’ll feel.
To learn more about compounding interest, play around with this compounding interest calculator. The powerful effects will surprise you.
It’s Easier to Save Money Over Time
Even without compounding interest, saving over a longer period of time is easier. Let’s look at some numbers without factoring in the interest.
If you put $100 a month into an account for 20 years, you’ll end up with $24,000. To end up with the same sum in 30 years you only have to put $66.67 each month.
You end up using less of your cash flow per month and still save the same amount. Then compounding interest comes along and sweetens the deal even more.
Save More With Long-Term Habits
Interest isn’t the only thing that compounds. Expenses do too, more than you may realize.
If you think about your long-term goals now, you can develop long-term habits to reach those goals. Making a budget and sticking to it now can save you loads of money over time.
For example, living in a home that costs a mere $200 less a month will save you $48,000 over 20 years. Cutting out that $100 cable bill saves you another $24,000. You never watch TV anyway so what does it matter?
Take that $300 and put it into an account with 8% interest and you end up with $178,000! You’ll have to cut out a lot more and make more sacrifices to get to $178,000 in less time.
Go to a retirement income planning event such as those hosted by Hal Hammond. That can help you get some perspective on how you should handle retirement savings. The earlier you start, the easier it will be in the long run.
Start a Retirement Savings Plan
To learn more about how to get started check out our ultimate guide to the best investment plan. Do your future self a favor and get started today!