Life is most difficult at the 20s characterized by college debt and low salaries. Saving for retirement at this age may be difficult, but there are numerous advantages for people who manage to save for retirement when they are still young. Young people encounter a lot of opportunities and challenges as they try to make a life of their own. Concerning saving for retirement, it’s never too early to start. Remember the earlier and more you save, the much you will have when you retire. Also, you will have given your savings more time and potential to grow. Some of the advantages associated with planning for retirement at a young age include:
Compound interest works well with time
The idea of compound interest is based on making money from the money you save so the earlier the better. The money your investments make is then reinvested to make more money. Young people have time on their side and the earlier they save, the better. For instance, if you invest $10,000 when you are 20 years old, this investment will be worth $70,000 by the time you are 60 maintaining an interest rate of 5 percent. If the same investment at the same rate is made when you are 30 years, it will be worth $43,000 when you are 60 years. If made at 40 years, it will be worth $26,000 at 60. Saving early for retirement is crucial to having financial stability when you have retired.
It’s easy to save a little when you are young than to save a lot when you are old
Saving a little when you are young will have a little impact on your pocket. For instance, it’s easier to save $100 every month for 40 years rather than saving $1000 for 10 years. If you decide to save $100 per month for 40 years with an interest rate of 12 percent per annum, you will have saved $1.7 million. On the other hand, an individual who went for saving $1000 per month with the same interest rate will be worth $230,000 during the same period. Despite feeling the pinch of parting with 1000 monthly, they will have saved little than you.
You can take on more risk
The kind of investment you decide to go for is determined by your age. Young people can make more risks as they have more years ahead of them. One disadvantage of investing when you are old is that you will only go for low-risk investments such as bonds. These investments have low returns. On the other hand, young people can take on more aggressive portfolios hence high returns.
Learn through experience
Experience is the best teacher. The best experience is the one we get to learn on our own and not the one we hear stories about. For young people, they can learn about the lengthy investment curve on their own. This way, young people can avoid mistakes later in life. Saving when you are young is very crucial.
Human capital favors the young
Saving for retirement can take many forms. Not only can you save money but you can improve your value when you are young. When you are young, you have fewer responsibilities, and this allows you to do more. You can enroll in another degree; you can learn advanced skills and even receive on-the-job training.
Many Opportunities come when you are young
You are only able to study and research when you are young. You are only active on the social media when you are young. Technology is not at the disposal of the old. So it’s important to make hay when the sun is still on.
Workplace retirement benefits
Taking advantage of the workplace retirement benefits greatly favors the young. Considering that these models work on the pre-tax basis, young people can lower their taxable income at an early age while saving more. The good thing about these schemes such as the 402(k) is that no taxes are made on your growing funds until they mature. With a tax-free environment, the more you will have to save the better.