A Millennial Wonders: When Should I Actually Think About Retirement?

On rare occasions, I wonder about when to start saving. Is it once you start to earn a larger salary in your thirties? When your parents retire? Am I already too late?

The short answer is simple: start saving for retirement as soon as possible. Ideally in your early 20s, once you start earning a paycheck. Every small amount you can put into a savings account helps, and if you set up a tax-deferred account and invest your savings with an assumed 7% annual return (that’s generous), annual contributions of $3,000 can grow to over $300,000 in a few decades.

Once you exit the workforce, costs you don’t consider normally will become regular and grow year by year. Medical care, housing, and general necessities for getting by will determine your quality of life, and only careful retirement savings planning can ensure that these costs are covered.

There are two main aspects to planning your finances for retirement correctly:

1) Paying off outstanding debt and

2) Using low-fee, high-quality investment instruments to grow your savings contributions.

While it seems obvious, paying off debt or limiting excessive interest payments is key to having a comfortable retirement. Most people are still paying their home’s mortgage by the time they retire and often don’t account for these recurring payments when setting up their plan for retirement.

Furthermore, thousands of Americans each year continue to pay exorbitant interest payments on late credit card payments. Late fees and soaring interest payments detract from retirement savings, so do your best to pay off all your debts so that your retirement account can be used with a clean slate.

Secondly, take advantage of instruments that your employers offer you for saving, like 401(k)s and IRAs. Many companies offer a contribution match to 401(k) accounts, usually a percentage of your salary. For example, with a 6% contribution match, if you have an annual salary of $50,000 and put aside $3,000 into your 401(k) account, your employer will add another $3,000. This seemingly small amount of your salary can grow much quicker than you expected.

Too many Americans are afraid of locking their money into long-term retirement accounts and run into shortages during retirement. Don’t fall into this trap. Don’t be myopic. Start saving as soon as you can!

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