Three Reasons to think about Retirement at a Young Age

by on Sep 2 2013 - 31 Comments

RetirementAs a twenty-five year old it’s hard for me to think about retirement. I’m too busy trying to get settled in my career (and decide if it’s really what I want to do for the next three-plus decades) and dreaming about starting a multi-million dollar business. Nevertheless, I think we all know that the earlier you start to think about retirement the better prepared you will be. Whether you want to retire early or work into your seventies, thinking about retirement at a young age can only benefit you.

Besides simply being prepared for the future, there are three main reasons I think it makes sense to think about retirement at a young age:

The earlier you start, the better off you are

I don’t want to focus on the value of compound interest, but it’s still important for me to mention it. The money you save and invest for your retirement earlier in your life will be worth more than money invested later in life because the interest you earn when you are 30 has time to be re-invested and earn interest itself. We can get fancy and go through some of the financial calculations, but overall it’s just easier to invest money today and have it work for you over the course of a few decades versus trying to “catch up” when you are fifteen or less years from retirement.

Get used to saving for retirement

Probably the best reason to start investing in your retirement at a young age is that you get used to saving and having a portion of your income go towards a retirement fund. When of the best pieces of advice for someone just out of college is to start having automatic deposits into their retirement fund. I started from day one at my job and I have never “missed” not having that portion of my paycheck because it is taken out automatically. It’s much easier to have this setup from day one versus see a drop in your take-home pay later on.

I realize that many do not have retirement benefits through work. This is just another reason to take a proactive approach at a young age. Many young adults will likely change careers and go in and out of part-time/freelance work at some point or another, so taking retirement savings into your own hands is of vital importance.

It forces you to think long-term

Another big advantage of thinking about retirement from a young age is that it forces you to think long-term. Where do you want to be financially in twenty or forty years? How do you plan on getting there? Do you want to have retirement income or do you plan on living off of your savings and investments from you’re pre-retirement days? I think all of these questions are important even if you retirement is something that is hard to fathom at your current age.

I personally would love to have income-producing assets in retirement, whether it is through real estate or dividend-paying stocks. If you use the dividend calculator I created you’ll notice just how much it would take in stock assets to make $x dividend income per year. Knowing this forces me (and hopefully others) to start thinking how they will save that much money, and in turn motivate savings.
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Have you started saving for retirement? What tips do you have for others who are having trouble getting started or don’t see a reason to make it a priority?
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31 comments
Tara Zee
Tara Zee

It also helps with lifestyle inflation.  If you can keep putting your raises towards your retirement or other savings goals, it ensures that when retirement comes (whether planned or forced) you're already living frugally enough!

LisaVsTheLoans
LisaVsTheLoans

Saving for retirement at a young age is a no-brainer for me. I don't want to disappoint future-Lisa! :)

Erin My Alternate Life
Erin My Alternate Life

My mom has barely saved anything for retirement and my dad didn't open up his 401(k) until his late 30s. My motivation is (1) I want to retire with dignity, (2) I want the option to never work again if I so choose, and (3) I want to avoid the financial mistakes made by my parents. 

I will say it is harder to save now that I'm self employed. Automatic payroll deductions rocked my world!

MonaSez
MonaSez

I haven't started mines yet. I've been researching trying to figure out which are the best options for me but I plan to start soon.

Nell Casey
Nell Casey

I definitely agree that the earlier you start thinking about retirement savings, the better.

In Australia we have compulsory employer retirement contributions, so it's sort of automatic. But the payments are no where near enough for a comfortable retirement so I'm working on building up my own retirement savings as well.

OutlierModel
OutlierModel

I started saving for retirement around ~22 years old after my manager at the time introduced me to RRSPs and how easy it was to contribute $50 a month.  So I started from there and now, I'm contributing $500 a month, plus 6% of my salary, matched.  I'd suggest people start with a small amount and have it automatically deducted each month.

Paulette Mensah
Paulette Mensah

Great advice. I realized met with a financial advisor from Vanguard at work a couple months back and intend on taking advantage of the retirement benefits through my job. Especially since they match it when you are full time. Since I hope to go back to grad school, I'd like to get an early start through my employer now.

DebtRoundUp
DebtRoundUp

I wish I didn't start saving for retirement so late, but it happens.  I wanted to pay off debt, so I started investing into a 401k, but now I am really investing much more and trying to catch up.

MicrosMissions
MicrosMissions

This is why I want to get a bunch set away in concurrence with my debt payment.  I could be debt free a year or two earlier but I can't get those years back for 401k and IRA contributions.  Those two years of retirement savings are huge 20 years down the road.

Andrew LivingRichCheaply
Andrew LivingRichCheaply

I definitely think it pays to start early.  I'm lucky that my dad encouraged me to invest at a young age.  Even before I graduated college, he helped me to open a Roth IRA and when I started working he made sure that I was investing in the 401K.  Many of my co-workers were also straight out of college and said they "couldn't afford" to save for retirement.  Honestly, you can't afford not to save!  And it is easier when your younger...you can still live like a college student. 

brokeandbeau
brokeandbeau

I've been out of school for 5 years and while my income is next to nothing, my retirement accounts are in great shape.  Even when I'm unemployed I know I'm "making money" in those accounts.  Starting the habit early is essential.  Time is money.

Eyesonthedollar
Eyesonthedollar

I certainly wasn't thinking retirement at 25, but I was smart enough to start contributing when I started working. Mainly because my boss told me I was throwing away money not to. He had lots of money, so I always tried to listen to what he said. 

At 39, I think about it almost every day and  how I can reach it quicker. Not by getting older, but by finding more ways to work less. Amazing what a decade and a half will do for your mindset about 40 hour work weeks. 

debtperception
debtperception

I haven't started saving for retirement yet.  I wish I could but I haven't been able to with the amount of student loan debt I'm in and my inability to secure a full-time position.  Sure, I'm in my 20s and thinking about it but I can't actually act on it yet.

Laurie TheFrugalFarmer
Laurie TheFrugalFarmer

Great post, DC.  Saving for retirement young is really about all that has saved Rick and I from imminent financial disaster in our retirement years.  Even though we've got boatloads of debt we're working to pay off right now, we've got a semi-healthy amount in retirement funds that will ensure we're ok financially once our debt is paid off and in retirement years.  It's also tough for many of our older family members right now, because retirement savings wasn't preached decades ago, and so they all didn't get started until their 50's, or they didn't start at all, and now they're really struggling to make ends meet financially.  Sad stuff to watch.

SenseofCents
SenseofCents

We have definitely started saving for retirement. So many don't see the point because they think they will work forever or because it is so far away. I say START NOW!

Taynia
Taynia

Ditto on #2.  Get used to it!  The sooner you start, the better.  And as you grow older and inherit more life responsibilities, and should you choose, apply lifestyle inflation, you'll already be comfortable with money coming out of your paycheck.  You won't even realize it!  It's a great thing.

SavvyJames
SavvyJames

Great article.  While I got an earlier start than many, early 30s, I wish that I had started even a little bit sooner.  Saving/investing earlier and letting the power of compound interest work for you is the way to go.  

Samgill
Samgill

I cannot agree more than this. It is always better if you start early. Wealth building should be thought in long term so that you plan well in advance for your retirement days. Good post David

Brian @ Luke1428
Brian @ Luke1428

Good stuff DC. It's incredibly easy to only see our needs in the present and work to satisfy what we want now. We have difficulty projecting into the future and understanding what our needs will be 30 years down the road. It's a must though if one is going to retire in relative comfort.

MonsterPiggyBank
MonsterPiggyBank

I started thinking about retirement in my early 20's and I am glad that I did. Already I have accumulated more retirement savings that many people at retirement age and I am not even 30 yet.

moneystepper
moneystepper

I agree that the earlier you start thinking about retirement the better. However, long-term thinking (especially for someone in their early 20s) can be difficult. 

Remember that, although it is essential to consider your retirement, think about the impact of your normal short-term decisions have on your long term net wealth, and hence your "retirement fund".

For example, when you say "I’m too busy trying to get settled in my career (and decide if it’s really what I want to do for the next three-plus decades) and dreaming about starting a multi-million dollar business." , these actions fill actually impact your retirement.

RFIndependence
RFIndependence

I just have one reason: I am lazy. So working more? no, thanks. That should be motivation enough for anyone. If you don't save for retirement, you'll be bagging groceries in your 70s while your friends soak up the sun in Florida. 

DC @ Young Adult Money
DC @ Young Adult Money moderator

@SavvyJames I think 30s is still "early" in my opinion, because there are many who spend their 20s and 30s deciding what career they want to pursue and don't necessarily have the income to save for retirement.  I do think your 20s is an ideal time to start saving, but it's understandable if someone waits until their 30s.

DC @ Young Adult Money
DC @ Young Adult Money moderator

@Brian @ Luke1428 I definitely agree that slowly stashing away money for retirement makes a lot of sense because of our inability to project our life 30 years down the road.

DC @ Young Adult Money
DC @ Young Adult Money moderator

@MonsterPiggyBank That's definitely impressive!  I heard there was a large percentage of people who have less than $10k saved up and are over the age of 60.

DC @ Young Adult Money
DC @ Young Adult Money moderator

@moneystepper You're right, a lot of short-term decisions have an impact on long-term wealth, and it's important to not put retirement planning in a vacuum where saving money in a 401k is the only variable considered.

SavvyJames
SavvyJames

@DC @ Young Adult MoneyAgreed that it is not necessarily late.  However, now that I am 13 years into actively contributing to my retirement accounts and have a clearer picture of the importance of the time factor, another few years of contributions would have been great.  I always implore people to start investing as early as possible, even if it is only $25/month, simply to start a good habit.  The danger in waiting is that 1 year becomes 2, and 2 becomes 4....before you know it, you are in your early 40s panicking because you now realize the implications of not starting earlier.  You won't believe how many people (mid-30s and beyond)  I meet that  say, "well I just can't afford to invest anything right now."  Wrong, they cannot afford not to invest right now. 

SavvyJames
SavvyJames

@DC @ Young Adult MoneyAgreed that it is not necessarily late.  However, now that I am 13 years into actively contributing to my retirement accounts and have a clearer picture of the importance of the time factor, another few years of contributions would have been great.  I always implore people to start investing as early as possible, even if it is only $25/month, simply to start a good habit.  The danger in waiting is that 1 year becomes 2, and 2 becomes 4....before you know it, you are in your early 40s panicking because you now realize the implications of not starting earlier.  You won't believe how many people I meet that  say, "well I just can't afford to invest anything right now."  Wrong, they cannot afford not to invest right now.