You’re young and semi-carefree. That’s the life most of us are living right now. Being young and not having too many responsibilities can have you believing life will be this way forever, but the truth is as we age, the responsibilities of life pile up faster than we realize. Before we know it, we’ll be our parent’s ages, wondering where all the time went and what we’re going to do about the times to come.
With the economy on a never-ending rollercoaster, the stability of our golden years is uncertain. Whether you’re a college freshmen or a young professional in their late 20s/early 30s, the time to start planning for retirement is now. Not sure if it is worth it? Think again.
An Early Start, Is The Best Start
Even if retirement is not for another 30 to 40 years, younger workers should start planning early for financial security during their golden years. Preparing a savings plan in your 20s can help provide you with a comfortable retirement in your 60s. Yes I know all too well that expenses such as a student loans, rent, utilities, and food can have your pockets on lean, but this is one expense you can’t afford to live without. By the time many of us are eligible for retirement having the security net of a monthly social security check might not be an option. It’s best to start sacrificing now to help ease the burden later on.
The Low Tax Bracket Advantage
As you scrape together change for lunch I know the struggle feels all too real, but being at this stage in life actually has an advantage. Of the two main retirement plans available, Traditional 401k and Roth, the Roth 401k plans allow you to take taxes out now so you can have more money to withdraw later. Getting taxed now not sounding like a good idea? It should. If you’re in a lower tax bracket right now, investing in a Roth means that the money you contribute will also be taxed at a lower rate, which means more of your money can go into the fund as opposed to taxes. If you chose to invest in a Traditional 401k, which takes out your investment pre-tax and then taxes you when you withdraw for retirement, being in a lower bracket means that when your investment is taken each month, your gross goes down, which means the amount of taxes taken out of your check each pay period will go down as well. Remember, the higher the salary, the higher the tax, which means it will cost you more, to invest more when your salary goes up in the future.
If you’re working for “the man” chances are your company offers a Traditional 401k plan. Most companies that off this will match their employee’s contribution up to a certain percent of their salary, a.k.a they are giving you money. If you were to participate in the program and opted to put 4% of your pre-tax check into a 401k plan each pay period, your company would match that amount every time! That means double the money going into your account each month and all you have to do is start saving to get it. Not participating with even as little as 1% would mean leaving free money on the table, and who is crazy enough to do that?
Are you saving for retirement? What retirement plans are you using?