Planning for retirement might seem to be way far down the line if you are just in your 20s or 30s. During these years, you are still bombarded with other things that you have to take care of. Relationships, career, travel, graduate studies, having your own family, or supporting your parents or siblings can be where your money is going.
However, many financial gurus would say that these years are the best time to start preparing for your retirement. Anyone nearing their retirement would tell you that the closer they are to it, the harder it is to prepare.
Here are the things you need to consider as early as in your 20s so you will not be rattled once your very own retirement comes:
Given that adults usually have a lot on their plates during their 20s and 30s, it is a must that one has the strong financial literary to manage all the expenses and allot accordingly to other aspects that require money. Gaining a strong sense of money management can help you manage your savings once you are no longer a part of the workforce.
Think of the income streams that you can still have even after you retire. Are you working for a company that provides pension or engage in a business that can cover you until your hair is gray? You will eventually reap your Social Security benefits, but that may not be enough.
Retirement does not necessarily mean also retiring from financial management, and the duration of retirement is indefinite. Thus, one must lay their foundation as early as in their 20s.
Time value of money
As the adage goes, “A dollar today is worth more than a dollar tomorrow.” The same goes with the time value of money, a simple financial principle that states how the value of money at present is worth more than an equal amount in the future.
To put it simply, if you won $1,000,000 from the lottery and you are given the option of whether to take the lump-sum amount or ten yearly payments worth $100,000 each, which do you think is the wiser choice?
When you apply the time value of the money principle, it is much better to go with the first option. Get all of your lottery winnings right now and put them in other investments like stocks or real estate. This principle is essential to forming your retirement plan as early as now since inflation also comes into the equation. A $0.15 McDonald’s burger in 1970 now costs two bucks or more.
Another valuable concept where the principle of the time value of money is applied is “The Million Dollar Baby.” While most people wanting to grow their assets opt for stocks, such growth would still depend on the market. However, with the Million Dollar Baby plan, you start saving for your child as early as 14 days after they are born.
With just about $100 to $200 of savings per month, the dividends are sure to pay great returns that your child can use for his education, wedding, travel, business, or other ventures needing a considerable sum of money once they are already an adult.
So if you think that it’s too early to think of your retirement, think again. If you start saving only when you are in your early or late 50s, the money you save will not be worth as much had you saved in your 20s.
The key is to start as early as possible so you can leverage the compounding interest for greater dividends once you retire.
Retirement may be far off, but your lifestyle in your 20s to 30s can significantly impact your life once that time comes. Since not everyone can pay the entire amount of a property upfront, obtaining a home loan can be a vital step to purchasing your first house. This can serve as your retirement home since, by the time you reach your retirement age, you probably have paid all the dues.
Some retirees also opt to live in the countryside to live a more peaceful life after spending their prime years working in the city. This way, it will be up to you. The same goes when you invest well in your health and well-being while you are young.
More people in their 20s to 30s reason that they are still pretty young to think about retirement. However, build a strong financial foundation, start saving, create a routine that you can take with you since retirement means a lot of time, fewer responsibilities, and a more fragile body. The key is to prepare early, and you will worry less and enjoy your retirement more.