This is the tenth post in our Retirement Investing 101 series written by Amanda Smith, Client Services Specialist at CESI. Check out Part 1 or continue on to Part 11.
Today I’ll be talking with you about the benefits and importance of investing early. Okay, I know that when you are in your twenties you are just starting your life and your career. For the most part you are probably broke. Perhaps you have started your family early as I did. When you are just beginning the responsibilities of your adult life, you think of retirement as something far away and nothing that requires your immediate attention. But let me tell you: You are so very wrong. You have an amazing opportunity to save a substantial amount of money because you have time on your side. Did you know that a 25 year old can save more money in 30 years than someone who starts at 35 years old who saves for 30 years? How? For several reasons:
- Compound interest
- This method means you earn interest on top of interest earned in previous years.
- Longer timeframe before retirement
- You have a longer timeframe to offset any losses before you need to withdraw the money.
- What this means: if the market goes down you have time to recover, as history shows the market fluctuates (what goes up will come back down and then go back up).
- Aggressive investing
- Because you have a long timeframe before you need the money, you can invest aggressively and be risky in your choices
- Aggressive investing has the opportunity for higher returns
It may hurt contributing to your retirement fund now because you would rather go to Cancun for Spring Break this year but who wants to work when they are old and tired? How lovely would it be to spend the rest of your golden years doing what you like whenever you want without the stress of money? The ideal savings percentage would be 10-15% of each paycheck, but if you are unable to contribute that much, please, oh PLEASE, contribute at least the maximum amount your employer will match. If you do not do this, you are literally leaving free money behind. YES! I said FREE money! If your employer matches your contributions, you need to take advantage of this opportunity. They are helping you save for your retirement. Just think about all those hours and hard work you gave to your employer. You may have been compensated for your work but don’t you deserve a bonus? This is your bonus!
I’m not just talking to younger people now. I’m talking to everyone. If your employer matches your contributions – take advantage of the opportunity and contribute to your 401(k) so you will receive the full match.
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