Many of us know saving for retirement is important, but other expenses seem to get in the way of putting money away as early as we should. It is important to start planning for your retirement income from the beginning of your working life.
We all dream of the perfect life once we get out of school and start our careers. But with real life also comes bills and expenses we may not have considered. One large expense for many people are student loan payments.
Even though you don’t think you have any extra money to put towards retirement savings, it is important to do anything you can to put money away for retirement. With the power of compound interest, by starting to save as soon as you can, in the end you will be putting less of your own money into the retirement accounts. Each year the interest your earned is added to the principal and the interest in coming years is based on the combined amount of principal and interest.
If you put $4,000 a year into retirement account starting at age 22, you could have $1 million by age 62 assuming an 8 percent average annual return. But if you wait 10 years to start contributing, you would to put in $8,800 or more than twice as much to reach the same goal.
If your employer offers a 401(k) program and matches your contributions, it is like throwing free money away if you don’t contribute money into the 401(k). Many employers will match the employee’s contributions up to a certain amount. Contributions made into 401(k) and many other retirement accounts is deducted from your pay check before taxes so it is tax free until you withdraw the money upon retirement.
You may not think you have extra money to put into retiremen,t but it is important to take a look at your spending and see if there are places to cut back on or cut out completely. Drive your older car a few more years instead of purchasing a brand new car right away. Along with car payments, with newer vehicles you will likely also have higher registration fees, insurance costs and other maintenance fees.
Another big expense for many people is dining out. You can save a considerable amount of money by brown bagging lunch to work at least 2-3 days a week and cooking evening meals at home. If you live alone, get together with a group of friends to cook meals.
It may be difficult, but it is important to start planning your retirement savings as early in your working life as you can.