Let's face it; you don't have to be 60 before saving for retirement. By then, the pressure will be considerably high as you need to save much within a shorter time window. By starting your retirement savings early, it becomes easier to accumulate wealth to secure your family's future as you'd be saving in bits over a more extended period.
When is the right time to start saving for retirement? The answer? As soon as you start making wealth!
And that could be in your 30s or as early as in your 20s.
Surprisingly, about so many millennials haven't started saving for retirement. And there's a lot of opportunity they miss out on because the longer your savings (investment) work, the more the returns you get. Also, retirement savings is one way to reduce tax.
Why people don't like to save early
Like many other people, you might be thinking as a young person, "why save for the next 40-50 years when I'm not sure of living that long?" The future is uncertain, so there's a pressure to enjoy your wealth now rather than later when you're old and retired. You want to enjoy 100% of your money traveling the world and living the dream life, which is perfectly understandable. Moreover, you might not be earning so much in your 20s and 30s anyway.
But then, there's your family, who may rely on your wealth when you're gone. Even though you're newly married with just one kid or yet unmarried, building and saving wealth for them can be one of the most vital forms of protection you can offer them.
And rather than doing it later, planning for your financial future will be much easier when you start early.
3 benefits of saving early for retirement early
Here are reasons why it's valuable to start saving for retirement early:
1. Reach your goals easier while saving less
If you want to achieve your financial goals quickly, saving less at a time is better. And since you save little at a time, you can spend on other things with relative ease.
Thanks to compound interest, your money will grow while you're busy doing things like sleeping or going on a holiday.
Of course, the amount you need to save for retirement depends on many factors, like where you live, how healthy you are, and what kind of lifestyle you want. And it's a good idea to talk to a professional wealth management expert to figure out what kind of savings you need to meet your retirement goals and maintain your desired lifestyle.
To decrease the income taxes you owe, consider diverting a portion of your paycheck to a retirement account or traditional IRA. By doing this, you won't be taxed on the amount you contribute, and if you're in a 24 percent tax bracket, you can save $240 for every $1,000 you put into your retirement account. This tax savings means you'll have more money to invest, and your savings will grow faster.
When you withdraw the money in retirement, note that you'll have to pay taxes on the entire amount. But you'll be in a lower tax bracket at that point or can plan to minimize your tax bill. Even if you save for retirement with a Roth IRA, which requires after-tax contributions, you'll still reap long-term tax savings because your investments will grow tax-deferred. Plus, with a Roth, you won't have to pay taxes on the money you withdraw in retirement.
The tax-deferred aspect of these retirement accounts is a significant advantage that you should start utilizing as early as possible in your career.
3. Achieve more even while saving
Retirement isn't the only thing you should be saving for in life. By adopting a habit of not spending your entire paycheck from an early stage, you'll be better positioned to save for other important goals like starting your own business or buying a house.
If you find it challenging to develop this habit, consider automating your savings or talk to a financial expert. Calculate how much you can save each month and set up an automatic transfer from your checking account to your retirement savings.
This means you won't have a choice but to save, which can help you stick to your savings goals.
It's not always easy to save, and much more challenging to stick to it. But knowing that saving early is in your best interest can make you feel better as you take money out each month into your retirement savings account.
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