Even though it’s several decades until you’ll reach retirement age, the intervening years will go by quickly. Before you know it, you’ll be nearing your 60s and, unless you start saving early, you may find that you won’t have enough saved for your retirement years. That’s just one reason that you should start saving for your retirement in your 20s.
Take Advantage of Compound Interest
It’s easy to assume that there’s some trick to compound interest, but this merely refers to the ability to earn interest on the interest you have previously accumulated. For example, A $1,000 bond that provides 3% interest yearly will give you $1,030 by the end of the first year. Each year, you’ll build upon that interest and earn 3% of your balance from the previous year. After 40 years, your $1,000 investment will have grown to $3,262.04 without you having contributed anything more to that amount.
Avoid a Mad Savings Rush
If you wait too long to invest in your retirement, you’ll be facing a mad rush to save as much as you can. Alternatively, starting your retirement savings in your 20s allows you the time to build up your contributions gradually. When you’re young, open an IRA or Roth IRA in addition to the 401k plan you have through your employer. This will give you the matching contributions that will help you build your wealth that much faster.
Develop a Sound Strategy
While you’re younger, you can create a set of goals you’ll have for your retirement. By figuring out how much you’ll need to live on in retirement, including changes in your medical care or travel plans, you’ll have an accurate number to work towards. You can develop a plan for reaching that goal with better success when you’re younger, and you have the time to make investing mistakes. As you get older, you won’t have the time to commit to a riskier investment strategy, so you may not be able to attain your financial goals.
In addition to starting a retirement account early, you should talk to an advisor about your goals. Many investment firms offer the services of an advisor for free to their clients. Additionally, you can find information and resources online to help you gain a better understanding of investing. By taking advantage of these resources early, you’ll maximize the growth of your retirement wealth.