If you've neglected to start saving for retirement, it's no secret that you need to remedy that as soon as possible. There are many reasons why someone doesn't start saving for retirement until later in life. Whether you simply didn't think that you needed to start early, didn't make enough money to justify putting money aside, or your employer doesn't offer a retirement savings plan – now is the time you must begin saving. You must think of your future self when you think of your retirement account. You may be withholding money from your current self, but your future self will thank you once retirement comes around.
Why we should start saving for retirement as early as possible
By saving early, you're gaining more than just an early understanding of how your retirement account works. Compound interest is more beneficial to you if your investment is allowed to compound for a longer period of time. For example, if you start to save $1,000 per year after graduation, you will be better off than someone who waited a few years until they were more "financially stable". This is because the more years your money has to compound, the more money you'll end up with when it's time to retire. Even if you save $2,000 a year, if you start saving for retirement 10 years after graduation, you will end up with less money than someone who started saving right away.
We're not suggesting you devote the majority of your paycheck to your retirement account right off the bat. Start by saving a little bit out of each paycheck and gradually work your way to saving more each year. If you can even manage to put in $20 a month for the first year, you'll have $276 at the end of your first year. You may think $36 dollars in interest isn't that much, but imagine what even more money could do between now and the time you retire. Anything you can contribute is worth contributing.
Consequences of not saving
Think you'll be okay not saving for retirement? You should probably consider the consequences of being ill-prepared before you put yourself in a very uncomfortable position. Here are a few circumstances you could come face-to-face with if you're not careful with your future.
- Living with Your Children - This isn't to say that we don't love our children, but we don't want to become a burden to them in our later years. If your retirement account isn't enough to provide you with food, shelter, and the other daily necessities, you're at risk for depending on your children to provide you with somewhere to live! If your children live out of state, this could only add the extra cost of moving expenses.
- Depending on Welfare – The welfare system is in place for those that need it and it's a positive addition to society. If you can foresee a possibility that you might require welfare, however, you should do what you can to avoid this.
- Inability to Take Care of Medical Needs - Unfortunately, we're not able to see into the future. This means we're completely unaware of whether or not we will have severe health issues in the future. A completely healthy person in retirement would require less money to live off of than someone who develops osteoporosis or arthritis later in life.
It's not too late to start saving for retirement
Now that we've told you why you should save for retirement and what could happen if you don't, we wanted to give you some options for you to get yourself on the right track if you haven't started saving yet.
- Fund your 401(k) to the maximum amount - If your current employer offers a 401(k) plan, it is imperative that you enroll as soon as possible. The earlier you start contributing, the more time your funds will have to grow. Additionally, if your employer matches your contributions, you will be able to take advantage of that as much as possible.
- Put Yourself First - Now is the time to start being selfish – especially if your future well-being is at stake. Don't spend extravagantly on other family members if you feel that money would better be put away for retirement. Even though you're able to help your children and grandchildren with some of their expenses for college and graduate school, they have the option of taking out student loans. You need to make sure that every unused penny is put away for your future retirement.
- Save Independently – While we are strongly recommending saving in a 401(k) with your employer, it's also a smart idea to start saving money outside of your 401(k), as well. Now, this savings won't reach the amount your 401(k) due the fact that you won't have someone matching the funds, and you're not having them directly taken from your paycheck. Think of your outside savings as a safety net. It can't hurt to have a little extra cash waiting for you on the side, right? Deposit what you can and when you can. Set small goals for yourself each month to see what you can avoid spending money on so that you can save it in your outside retirement account instead.