‘The time to start saving for retirement is yesterday’ quipped the financial advisor. The second-best time to start is today!
The longer you save for retirement, the more money you will have to retire on, even if the amounts saved are quite small in the beginning. This article looks at the reasons an early start to retirement saving is so vital and why so many people just don’t get it.
In a recent US survey of 1,153 retirees and workers, the results showed that nearly half (43%) had retirement savings of under $10,000, excluding their pension and home. Unless you only intend to live for a year after you retire, $10,000 isn’t going to get you very far.
In another survey of nearly 10,000 people, 34% stated that they were not contributing to any type of retirement account; 31% claimed they were saving just 1% to 6% of their income; only 8% were saving more than the recommended 15% for their retirement.
These surveys show quite clearly that a huge section of the working population is not making any contribution towards their retirement funding. In this day and age, it is certainly not a good idea to sit back and hope to rely on government pensions either. With the population aging, there simply won’t be enough people working and paying taxes to fund any government support of retirees.
Why are so many people not saving for their own retirement? In other surveys, these are some of the reasons people give –
– “I’m young, I just want to have fun; there’s still plenty of time.”
– “Retirement seems so far away; there’s no real urgency.”
– “I don’t earn enough to be able to put anything away for retirement.”
– “With the rising cost of living, I am having trouble making ends met, let alone putting anything aside for the future.”
– “My boss doesn’t have a 401K for me to join.”
You want to plan to retire from work, not from life. Retirement is supposed to be the best time in your life; a time that you look forward to with eager anticipation, not dread.
Unless you want to work until the day you die, you are going to need some savings to fund the years you no longer earn an income. Whether you want to retire early or work well after the retirement age, you will need to have saved enough to enable you to continue to live in the manner to which you have become accustomed. How many years will you be retired?
If you have no retirement fund, your quality of life could well be affected. It might mean living frugally, hoping you have enough for the bare necessities of life. I don’t think I’d like to live like this, but it is how many people have to. Unfortunately, it is going to be the reality of thousands of people in the future as well.
“Why should I start retirement saving early?” is a common question from young people still in high school or college, in their first job or just starting out in their career. They might have a part-time job to help pay their way through school or they may have started full-time employment for the first time. They have money to spend and the last thing on their minds is retirement.
Do you know anyone who fits this scenario? I know I do.
For a number of years, financial experts have been advising young people to set up a retirement savings account right from when they first start paid work. The ones who listen will be glad they did.
There are numerous scenarios that show the exponential growth of small amounts of savings over the working life of an individual. Even very small amounts from each pay packet, invested in a savings account, can grow to a healthy retirement income. The key is the length of time and the regularity of savings.
Here are some tips about starting early to save for your retirement years.
1. First, you’ve got to make a commitment to set aside a small amount from every pay check to fund your retirement. Have it automatically deposited into a retirement or high yield savings account.
The way to work out how much you can save is to create a simple budget that includes all your expenses and income. Even just $5 a week from your first part-time job at McDonalds is a great start and you are way ahead of most kids your age. If there’s no money for this, look at ways to cut back your spending, even by just a few dollars a week.
2. When you start your first full-time job, ask your boss whether they offer a retirement plan. Some employers will match your own contributions to your 401k or RRSP, up to certain limits, so this is extra incentive for you. Otherwise, ask about getting help to establish retirement account. There may be conditions or a qualifying period for these, so get all the information.
Why start early? Here’s a scenario that tells you –
- If you start saving $100 per month from age 25, your retirement account would hold $379,000 when you are 60.
- If you didn’t start saving the $100 until you were 35, you would have only $132,000.
Look at the difference the 10 years makes! As you earn more, you will increase your contributions and your retirement income grows exponentially.
This is your financial future we are talking about here. While it may seem a long time off, take a serious approach to it now, so you won’t have to worry later.
So readers, two questions today:
1. At what age did you start saving for retirement and what strategies did you use?
2. If you haven’t started saving for retirement, why?
PS: Don’t forget to check out the new “Share Your Voice” section on the PET homepage