Many millennials are entering into an exciting stage of their life. Some are graduating college and starting careers. While adjusting to true adulthood, it can be challenging to think about the future and begin planning for retirement. This is due to a number of reasons. What they don’t consider, especially in their 20s, is the best time to begin saving is now!
We’ve came up with 4 advantages on why millennials should consider saving in their early 20s.
Being away from your parents and living on your own terms is a lot of responsibility. You especially have to be smart about your finances. You will have to plan for future expenses by putting money aside for short term and long term goals. Saving for retirement early helps change the way you think about money and financial stability in your future. This mindset shift will help you create greater wealth and save you financial heartache in the long-run.
Starting young at anything is an advantage. It gives you time to make mistakes and plan. In this case, you have over 40 years ahead of you to make your money work for you, utilizing the power of compounding. For example, if you’re 26 years old and you decide to place $500 bucks into a retirement plan each month, with an average of 8% being earned annually, and allowing it to grow for 40 years, you would have over $1 million when you’re 65-66 years old. However, if you procrastinate until your 30s to begin this process, you wouldn’t be so happy with your retirement savings.
Also, keep in mind that you can earn more than 8% annually, depending on how or where you invest your money. This can easily earn you a couple million dollars by the time you retire. Sounds good right? We know.
Sometimes voluntarily putting money into a retirement account is hard. In that case, this is where workplace retirement plans such as 401(k) or a 403(b) come in handy. They will automatically take a percentage of your salary and deposit it into your plan. A good thing about this is that you are not required to pay taxes on the growth of your funds until you begin withdrawing money. This also lowers your taxable income. However, any withdrawals before the age 59 1/2, in tax-deferred retirement plans, may be subject to a 10% federal income tax penalty.
Besides student loans, millennials still have less financial burdens than someone older who has a family. Especially since you may still utilize the help of your parents. With that being said, it’s easier to free up a few dollars to place into a retirement plan. Establishing this habit now will greatly improve your living situation after retirement.
We understand retirement is the last thing millennials think about, but it shouldn’t be. We have helped many individuals from all age groups set up individual retirement accounts. If you are interested and would like a free consultation, give us a call at 217-345-7063 to invest in your future. Contributions do not have to be big. Whatever is affordable for you is sufficient.