Why You Need to Save for Retirement Right Now

Piggy Bank With Deckchair

When you’re a young professional, retirement can seem like a very distant dream. With student loans, car payments and rent, saving money you cannot touch for 40 years seems ridiculous. You are not alone in this mindset; according to a Wells Fargo study, nearly half of all millennials have not started saving for retirement. However, putting off building your nest egg can put you way behind and can jeopardize your ability to retire at all.

Your Retirement is Different from Previous Generations

Your parents and grandparents likely had the benefits of a pension or social security payments, but if you were born after 1980, you will not be so lucky. Social security will be cut way down, if it exists at all, by the time you are ready to retire. Moreover, pensions, once a standard benefit, are now virtually nonexistent.

You will not have a safety net like previous generations. That means you are responsible for funding your retirement on your own. If you want to be able to stop working, you’ll need a hefty retirement fund.

One million dollars used to be the gold standard to aim for when saving. But that amount will not cut it for the millennial generation. It is estimated that you will need between $1.8 million and $2.5 million to retire comfortably.

When you are struggling to get by, coming up with $20 can be hard enough, so thinking about millions can make you feel helpless. However, it is important to start thinking about it, and you have the strongest factor on your side: time.

Time and Compound Interest

The earlier you start saving, the harder your money works, accumulating interest over the years. Through the power of compound interest, your money will multiply several times over, so you can actually set aside less than you’d have to if you started saving later.

For example, let’s say you started saving $300 a month at the age of 25. Assuming you have an average return of 8% and you did this for 40 years, you would have contributed just $144,000 of your own money, but your account would now be worth over $1 million. But if you waited until 35 to start saving, you’d have just $440,000 by the time you were 65. That difference of ten years would cost you over $500,000!

Finding the Money

While compound interest sounds great, contributing $300 a month can seem impossible. However, even investing small amounts now can reap huge rewards later. Get in the habit of saving what you can each month, and it will make a huge difference. These tips can help you get started:

  • Contribute to a 401K: If your employer offers a match on a 401K or 403b contribution, take advantage of it. That is free money! Contribute whatever you can to get the match.
  • Open an IRA: If your employer does not offer a match, you can still save on your own with a traditional or Roth IRA.
  • Track your spending: Review your bank and credit card statements to see if there are any areas you can cut. Whether it is skipping your morning coffee or watching Netflix instead of going to the movies, those little changes add up.

Retirement can seem like a low priority when you are young and starting out, and with changes in the economy and to pension systems, millennials face some of the biggest financial challenges the United States has ever seen. However, if you start now, you can build a secure future for yourself and enjoy a comfortable retirement.

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Kat Tretina is a freelance writer in the Orlando area. She is focused on creating content that helps young adults achieve their full potential, whether it's through personal finance, productivity or religious content. You can reach Kat at KTretina.com.