During your twenties, everyone has some kind of advice they want to impart upon you. Whether it’s “live in the moment!” or “find a job you love,” those older and wiser seem to have a million tidbits of knowledge they want to share.
However, one thing many adults don’t stress to recent college grads is the importance of saving for retirement right away. Although living in the moment and focusing on your passions is important, many twenty-somethings miss out on the opportunity to build wealth with very little effort.
Compound Interest Is an Amazing Thing
Many people don’t want to save for retirement soon because they don’t know how the process works. They hear phrases like “compound interest” and “IRA” float around, but they don’t truly understand what they mean until they’re older.
As soon as I began to understand the massive impact of compound interest, I felt like I had no choice but to start saving aggressively. Think about it this way: a 25-year-old who puts away $5,000 one time and never saves again will have more money saved after 40 years than someone who waits ten years and then saves $500 per year for the next 30 years. Just think about how much wealth we could all accumulate by the time we’re middle-aged if we all started saving aggressively while we’re young!
Investing Takes Time to Learn
Ask many twenty-year-olds when they start planning to save for retirement and they’ll say “later.” The problem with this answer is that it not only puts you behind in your goals, but means you’ll have to save even more later to make up for it. No one can become an expert at saving and investing overnight, which means your profits will most certainly be delayed even after you start saving.
When I started saving in my early twenties, the process of learning to invest my IRA contributions overwhelmed me. I spent hours researching the best tactics and made several bad choices before I began to see any growth. That’s why I’d recommend that any college grads (and even college students) start to build a retirement fund way in advance. This gives them wiggle room to learn and make mistakes before they really need to sock away large amounts of money.
Social Security Isn’t a Guaranteed Benefit in Our Future
Although Social Security payments might seem like a given, the Social Security Act was only created in the 1930s. According to some experts, it has grown past its original intent, and although it may be there to support this current generation in their retirement, it’s not a guarantee. Many things can change in the next 50 years, so everyone needs to have their own backup plan for retirement that doesn’t rely on help from the government.
The Bottom Line
Unlike some people, I fortunately didn’t wait until I was very old to start saving. Still, I wish someone had told me to start saving as soon as I possibly could. This would help me reap more benefits and feel totally secure in my ability to retire on my own terms someday. The median retirement savings for most Americans in their 30s is only $45,000. By just starting to save five or ten years earlier, you could make a staggering difference in your savings. Don’t regret your choices like me; instead, open your IRA or 401K today and start preparing for your future.