It is vital for young people to start their retirement planning and saving as soon as they can. It is not always the first thing people think of when they begin their first job or are building a career, but it is possibly one of the most important things that you will ever do.
Remember, if you start early, you can put away less each month than starting later in life. Compound interest is your best friend and key to saving early. Basically, compound interest is the process by which a sum of money grows exponentially because of the interest building upon itself. If you give the money more time for the interest to build, you are giving yourself the best opportunities later in life.
What is key is that if you start planning early, you have time on your side. Think of planning for your retirement as planning for a better future and using your youth to your advantage to make things easier in your older years.
Why Plan for Retirement?
For young people starting out in life and on a great career path, thinking about their future retirement seems to be foreign and downright pointless. However, it is a critical thought process and one that it is advised to do early on in your career.
As medical technology and treatments improve and become cheaper, people are living longer. There are more older people in the US than there have ever been before. The facts of the matter do not lie, and, as such, the universal truth is that we will all age, and 80% or more of us will need some form of specialist care in our later years. Therefore, if you are reading this article, the chances are that you too will age (gracefully, we hope) and furthermore will need to think about what you do after you finish your career. You may contribute to a workplace pension or be entitled to a state pension or neither of these, but either way, you will need to think this through. If you are to live longer, you will need to fund this and thus need some form of retirement planning.
Saving will form a large part of this plan, and the earlier you start, the easier it is for the money to grow; compound interest needs time to work its magic on your money.
How to Start Your Planning
You need to figure out what it is you would like from your retirement. If you are clear about where you would like to be, it will be easier to get there. Look at your parents and elders and see what they have chosen and planned for their retirement living, or if they haven’t, and improve on this. This is the beginning of the planning process; determine what you want your retirement to look like and then aim to get there. You may need to do some research to see what the options are, but it’s blue-sky thinking.
The coronavirus pandemic should have taught us that there is no time like the present, and if it’s Florida, somewhere sunny, a mountain retreat, a reputable care home in the Hamptons, if you can think it and it makes sense to you, then you plan it.
Plan as to when you are likely to retire so you know when you will need to access your savings, pension, or emergency savings.
What to Include in the Budget?
You will need the basics (shelter, food, companionship, entertainment), but the manner in which you do so will depend on what you can afford. Global travel, the occasional cruise, local travel, time with the family on holidays, living in a community with other older people are all options that you have and will have to plan and save for. Many Americans now choose to retire and downsize, moving to small retirement communities where they are able to access the specialist care they may need, as well as the companionship of similar-aged compatriots. With professional services offered by Frontier Management, the largest senior housing operators in the US, these are the type of options that you should be aware of out there.
Use an IRA (individual retirement account) where the money is not hidden away, but it is not as easy to access as the money in your checking account. Remember, the cost of retirement care and housing may not be covered by the State you live in, and, as such, you will need to have money available to support the actual choices you make.
You must also include the social security to be received from the State, keeping in mind that the later you collect this, the more you will be able to access.
When to Start
It is important to realize that your retirement should not signify a major change in the routines in your life that you have become accustomed to for over half a century. Instead, it can be a time of immense joy, with freedom from the 9-5 and the ability to spend quality time doing what you enjoy with those you enjoy being with. Retirement for many is thus something that is long-awaited and much appreciated. There is, however, another side to this, in that for those who have not planned, it can easily become a stressful time filled with anxiety and financial worries.
If you start early, you will provide yourself with options later on in life. As mentioned before, compound interest will additionally serve to make an early start worth your while.
The advice in this article may not have been the funniest read ever, nor the most exciting read, but it will rank up there with the most important reading you have done in a while. Young people need to plan for their futures from an early stage in their careers. The stats clearly show that those who do start retirement planning early have a much more stress-free and relaxed experience of retirement.
