Saving for retirement young is not something everyone learns while they’re in high school.
It’s actually not discussed as much as it should be.
That’s probably part of the reason why Americans struggle to save for retirement today.
Most people don’t realize how much easier saving for retirement is when you start saving for retirement young.
How young you ask?
The younger, the better.
We all know that there are always other expenses that we need to take care of throughout life.
But saving for retirement young should be a priority. No matter the income.
Do you really want to work in your 70’s?
We’re not bashing you if do.
But for the others that don’t want to work that long… let us tell you why saving for retirement young is the best way to reach your goals.
An Example Of When Saving Young Pays Off
Jeremy Jacobs and Winnie Tseng were able to retire at the age of 38 and 33. They pulled this off by having a plan to minimize their expenses. They stuck to their plan and only lived off of $40,000 a year.
The rest of their income went towards their savings. This would be 70% of their combined income.
The couple concentrated on cutting spending in big areas like:
They rented a 900 square foot apartment and didn’t own a car. You can do this too! Try living and working in an area where biking is easy and there’s public transportation.
And in case you ever need a car, you can either rent or borrow a car from a friend.
Jeremy was 40,000 in debt after he graduated from college. But he concentrated on paying off his student loan debt as quickly as possible. The couple was able to pay off their student debt in 5-6 years.
And he still retired at 38!
Start Saving As Soon As You Can
If you start at age 21, you only need to save 25 dollars a week to have enough to fund your retirement at age 65. This will give you 25,000 dollars a year to live on after retirement.
If $25,000 isn’t enough for you to live off of, you will need to save more money weekly.
Things that can help you reach your retirement goals are employer sponsored retirement plans. 401 K plans give you a chance to save money from your salary over a number of years. You can then draw on it when you retire.
If you don’t have any faith in carrying out the plan by yourself, you can always open a Roth IRA. Then you can automatically transfer money from your checking account into your Roth IRA with each paycheck.
The Value Of Early Long Time Investing
There was a time when employers offered pension plans. But now it has become the responsibility of the workers to find their own retirement plan in the form of a 401 K or an IRA.
A key benefit of these plans is the compound interest you earn. Compound interest happens when interest builds to a certain amount of money. This money will then build on its interest. This can cause wealth to snowball.
So the earlier you begin the process… and the longer you keep your money in these accounts… the more your money will grow off of the compound interest.
Check out this chart to see how compound interest works!
How Much Should You Save in Your Twenties?
A report from J.P Morgan Asset Management makes a case that saving in the present could have an impact on what you may have to deal with in the future.
If you save too little you will be gambling with a few things to go your way:
- you will avoid sickness
- the stock market will always be on the upswing
- politicians will always do the right thing
So we recommend not taking these chances and save as much money as you can for retirement.
This is a warning for Millennials that haven’t started saving yet!
Most millennials don’t have retirement savings. And Millennials make up the largest percentage of the American labor force. Those that are in the workforce should start thinking about saving toward retirement.
AND ACT NOW!
Savings for Couples
Median income couples will have to save 15.4 percent of their pre-tax income each year.
If the same couple starts saving at 35, the annual rate will jump to 19.1 percent.
This figure could change due to such things as:
- needing to retire early
- family emergencies
- changes to social security
- policy change
- lower returns
- no employer match
Another factor in the equation is if you don’t have a 401 K account. That would make things trickier.
If you don’t have a 401K account through your employer, you should find out about the other options for investing and saving your money. Don’t let it be an excuse for not saving the amount of money you need!
Did you start saving for retirement young?
Do you have any retirement success stories or stories of people you know?
Share your knowledge in the comment section below and inspire people to start saving TODAY!