Time and calculation are the secrets to successful retirement planning. You don’t need much money to get started saving for retirement, but you do need a lot of time to build savings that you can retire with.
The Power of Compound Interest
Compound interest is a seriously powerful force in saving for retirement, but it takes time to unlock. Compound interest is defined as the process of interest building upon itself over time. It takes a long time to accumulate, but over decades, you will see impressive growth.
Disposable Income: Throw it in the Bank
When you are in your twenties, you most likely are not burdened by kids, a mortgage, aging parents, and other large issues which can weigh your wallet down. What can you do with that extra money you’re not using? Traveling, adventure and comfort should be considered, but at least some of that extra money should go into retirement. In fact, make it a habit in your twenties to start directing a percentage of all income into savings and retirement. Start an emergency fund, so all accidents and surprises will not hit you too hard financially.
Investing Early Pays Off
Time makes the biggest difference in having scarcity of wealth in retirement. With time on your side, you can afford to take more risks and do more aggressive (but careful!) investing. Most of your retirement savings will be channeled through a retirement account like a Roth IRA or a 401(k). By starting early, you will give yourself time to diversify and select the ones that best fit your current situation. Supplement a 401(k) with a Roth IRA. Invest in stocks. You have a wealth of options to explore. If your investments turn sour, you have time to absorb those losses.
Retirement planning is hard, but it only gets infinitely harder the longer you wait. Divert some of your disposable income into a 401(k), and you will be big ballin’ late into your twilight years.
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