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The following article is by MPFJ staff writer, Miss T from Prairie Eco-Thrifter. If you want to learn how to live your dream life in a sustainable, healthy, and money savvy way, check out her site here.
You hear this question a lot – twenty and thirty year olds often cannot see the need for retirement saving. Having finished their education and just started in their first real job, young people think that retirement is such a long way off.
Surely there’s plenty of time for all that later on, right? The trouble is, it’s this kind of thinking that leaves millions of people without adequate retirement funds. I don’t know about you, but scrimping and going without in my older years isn’t my idea of a fun retirment.
Why Start Saving at an Early Age?
When you first start work, you want to go out and have fun after all the long years of getting your education and training. I get that – I felt exactly the same way. Unfortunately, I didn’t have a very good idea about financial management either, so I wasted heaps of my hard-earned cash. I came to my senses when an accident put me off work for a few months, and I realized that living from pay check to pay check had left me without any reserves or savings. This was when I took a hard look at my situation and tried to educate myself about personal finances. This was how I came to understand the importance of starting early with saving for retirement.
Surveys conducted in different countries in America and Europe show an alarming world-wide trend. One third of workers admitted to having no retirement savings fund at all; another third said they were saving only between one and five percent of their wages. In the US, over 40% of workers admitted to having less than $10,000 in retirement savings; I hope they don’t plan on retiring any time soon! Financial planners recommend saving around 10 to 20% of your salary, depending on your age. As you get older, additional retirement saving is advisable.
The simple truth is, the sooner you start retirement savings, the more you will have when you finish working. Even small amounts, put aside regularly, can grow to a size able retirement fund. In fact, this is the key to success with saving for retirement; regular amounts saved into a specialized account will give the best results as far as financial security in old age is concerned.
Just how do the figures stack up? As an example, saving $100 each month from your mid twenties would yield about $380,000 when you are 60. If you didn’t start retirement saving until your mid thirties, this scenario would yield you a bit over $130,000. Now, do you see how starting early is the best strategy?
The Importance of Budgeting
Before you can decide how much you can save, you need to know where you stand financially, right now. The best way to do this, and be able to track your income and expenditure, is with a personal budget. Yes, I know; you’ve heard it all before, but there’s a really good reason for that – it is important! Trying to manage without a budget is like driving a car without brakes – you have little control and will probably crash.
So, take the time to sit down and work out a budget that works for you. Make sure everything is included in income and expenditure; leave nothing out. If you find you are spending more than you are earning, it’s time to make some cuts in spending to bring that into line. You must spend less than you earn, and you must make allowances for an emergency fund and savings. Using your budget as a guide, decide on a figure that you can put aside every pay period; increase this figure when you get a pay raise. The best arrangement is an automatic transfer into a specially designated account in order to take human error out of the equation.
Where to Put Your Retirement Savings?
When you first start work, this may be the simplest form of retirement saving for you. However, many companies offer a retirement account called a 401k to employees. Your contributions are taken directly from your salary, so you don’t have to remember to transfer the money and you don’t miss it because you never see it. The great thing about a 401k is that your employer will also contribute to your retirement account as part of your employment package. This is basically free money, so you would be silly to pass it up. There is often a qualifying or waiting period before these extra contributions start, but check with your own employer as to what is available and what rules apply.
Figure Out a Quick Estimate for How Much You Need for Retirement
Try this exercise – calculate how much money you think you’ll need in retirement. You’ll need to know how long you expect to be retired. Calculate the total dollars needed at a rate of about 75% of your current living expenses. Take this grand total and divide it by the number of months left in your working life.
That’s how much you need to be putting aside each month to fund your retirement. Sobering, isn’t it?
How about you all? At what age did you start saving for retirement? What stopped you from starting sooner?
What percentage of your salary are you currently saving for retirement?
Share your experiences by commenting below!
***Photo courtesy of http://www.flickr.com/photos/68751915@N05/6869770873/sizes/l/in/photostream/