As a result, the thought of saving for retirement might seem laughable to some 20 to 30-somethings and downright scary to others. After all, the average Millennial has a hard time imagining a time when they won’t have student debt hanging over their head, let alone a time when they can leave the workforce. Plus, who wants to think about retirement when there’s so much life to live now? The truth is that saving for retirement shouldn’t be anxiety inducing at all. In fact, beginning your savings early will actually lead to a huge weight being lifted off of your shoulders in the long run. With that in mind, here are three reasons why you should stop worrying about saving for retirement and start doing it.
1. You can get free money with employer matching
If your job offers 401(k) eligibility, there’s a good chance they also offer some sort of employer matching or profit sharing. This is free money! However, in order to get that extra cash, you’ll probably have to contribute a certain amount yourself. When it comes to employer matching, every company is a little different. Some might match you dollar for dollar up to a certain amount, others might do 50 cents on the dollar, and still others might do a combination of the two. That’s why you’ll want to find out what the maximum percentage they’ll give you is and how you can obtain that amount. Then all you have to do is sign up. Keep in mind that, while you’ll always be entitled to any money you put into your 401(k), your employer matching will likely be tied into what’s known as a vesting period. This could mean that you need to be with the company for more than X amount of years before you get to keep their contributions, or you might be able to keep a larger share with each passing year (20% after one year, 40% after two, etc.). Ultimately this could mean you lose out on some of the bonus money, but don’t let that dissuade you from opening an account in the first place.
2. You can learn about investing
How much do you know about the stock market and investing in general? If you’re like most Millennials, then the answer is probably “not very much.” In fact, you might not even realize that, by having a 401(k) or IRA, there’s a good chance you’re already investing in the stock market. Depending on the type of account your employer has or the type of IRA you open yourself, your contributions will likely be put into a mix of stocks, bonds, and securities. When you’re younger these investments can be more aggressive, which usually means a higher percentage of stocks that will fluctuate over time. Then as you get older, most people will move their balances into safer investments like bonds or money markets. While this process is mostly pretty hands-off, there is still a lot you can learn. For one, by watching your account (but not freaking out about the day-to-day ups and downs), you can see how stocks react to certain events, such as the Brexit or the presidential election. By taking an even closer look at your account, you can also learn about stock dividends and other terms you might have heard by turning on CNBC before the Shark Tank reruns came on. Ultimately this knowledge will come in handy should you decide to really up your investing game and buy stocks on your own.
3. You can watch your early savings grow into much more
The biggest reason to jump into retirement saving as soon as humanly possible is the amount of cash you’ll have saved up by the time you need it. By getting a head start on your contributions and taking advantage of compound interest, your small deposits will amount to a hefty sum that will carry you through the rest of your time on this planet. You’ve probably seen the TV commercial that demonstrates this idea using increasingly larger dominoes. While that’s not a bad comparison, looking at the actual numbers might do more to impress you. According to hypothetical proposed by Business Insider, the difference between starting your retirement savings at 25 as opposed to 35 could mean you end up with double the amount of money when you reach 65. As they figure, if you started putting just $200 a month into an account with an average return of 6% at age of 25, you’d have just over $400,000 40 years later. However, doing the same starting at 35 would only result in about $200,000. Furthermore, the difference in principal contributed is only $24,000 ($96,000 since age 25 versus $72,000 since age 35). If this doesn’t get you to start thinking seriously about setting money aside for retirement now, I honestly don’t know what will.
Conclusion
When you’re in your 20s or early 30s, retirement is probably about the last thing on your mind. While it might seem strange, these are actually the years you want to not only be thinking about retirement but also start saving for it. Setting money aside for your later years doesn’t mean you’re getting old or that you’re wasting your youth — it just means you’d like to have some money to enjoy life after you’re done working. So what are you waiting for?
