It’s Never Too Early To Start a Retirement Plan
Retirement may seem like a distant dream when you’re in your 20s, but financial experts are urging young adults to start planning for retirement now. Rita Assaf, the vice president of retirement at Fidelity Investments, emphasizes the importance of saving for the future, regardless of age. Retirement is the ultimate financial goal we strive for throughout our lives, and taking action now can set you up for success. Here are compelling reasons why starting a retirement plan in your 20s is a wise move:
– Shield Yourself from Economic Downturns
By beginning to save for retirement in your 20s, or as early as possible, you gain the advantage of time. This time cushion allows you to recover from any economic downturns that may impact your retirement savings. Building a financial safety net early on can protect you against unforeseen circumstances in the future.
– Leverage the Power of a Longer Time Span
Having an age-appropriate asset mix that balances risk and growth potential is key to achieving your retirement goals. Assaf advises against investing too conservatively at a young age, as this may necessitate higher savings later on. Prioritizing saving before taking on major expenses like a mortgage or supporting a family is a wise strategy. – Harness the Compounding Growth of Savings Mindy Yu, director of investing at Betterment at Work, stresses that every dollar saved now is an investment in your future. As you contribute to your retirement plan, your investments grow alongside the market over time. Don’t underestimate the power of compound interest. Each dollar saved today will be worth exponentially more when you reach retirement age. It’s a marathon, not a sprint, toward building financial security.
– Maximize Employer Benefits Employers
often provide financial wellness benefits, including 401(k) plans and other perks such as wellness stipends and access to financial advisors. Take the time to understand the benefits your employer offers and how they can assist you in investing and saving effectively. For instance, if your employer offers a health savings account (HSA), funds invested can help cover future medical expenses. Additionally, take advantage of match programs where your employer contributes to your retirement fund based on your own contributions. – Determine the Target Contribution Amount While everyone’s situation is unique, Fidelity generally recommends aiming to contribute 15% of your pre-tax income each year for retirement, including any employer matches. If 15% seems unattainable, start with what you can manage. Assaf suggests contributing enough to maximize your employer match, as it’s essentially free money. Gradually increase your contribution rate by 1% each year until you reach the 15% target.
– Overcoming Budgeting Challenges Saving
for retirement may feel challenging, especially when you’re in your 20s and likely earning less. Mindy Yu advises young workers to contribute even a small portion of their paycheck towards their retirement fund, such as 1-2% initially, and ideally enough to meet their employer’s match if available. Even if saving 10-15% of your income seems daunting, any amount you put aside is better than nothing. Compound interest will work its magic over time, and your investment will grow significantly. Both Assaf and Fidelity stress that individuals in their 20s should prioritize retirement savings. Time is on your side, and by staying invested and making consistent contributions, you can weather market volatility and recover from downturns.
Don’t let fear or uncertainty discourage you from taking action and securing a financially stable future. Start planning for retirement now, and reap the rewards later in life.
