When to begin saving for retirement
After finishing school and landing their first jobs, the furthest thing on many young professionals’ minds is retirement. Although the day young workers will cash their last paychecks and bid farewell to the workplace may be decades down the road, it’s never too early to begin saving for retirement.
The sooner a person begins saving for retirement, the more time his or her money will have to grow. As more deposits are made and interest is compounded, retirement investments can grow considerably.
Ideally, workers should begin saving as soon as possible. Compounding interest produces a better return for professionals who start saving when they are young than for those who delay their retirement savings. Unfortunately, many of today’s new workers are not prioritizing retirement. According to a study from Hewitt Associates, just 31 percent of Generation Y employees (individuals born after 1978) who are able to deposit money into a 401(k) retirement plan actually do so.
The easiest way to save for retirement is to make the process entirely automatic. One can achieve this by signing up for an employer-sponsored 401(k) or another retirement plan.
When opening a 401(k), workers will have a predetermined portion of their earnings deducted from their paychecks and deposited into the retirement account. Such contributions are made prior to being taxed, adding even more incentive to begin saving as soon as possible.
Money deposited into a 401(k) will then be available for withdrawal when the employee reaches retirement age. If the employer has a matching program, even better, as that means the company will match employee contributions up to a certain percentage.
A person may also want to establish an IRA (individual your retirement account).
IRAs, which are available as traditional IRAs or Roth IRAs, are typically offered through financial establishments and provide taxfriendly ways to save for retirement. There are differences between traditional IRAs and Roth IRAs, and these differences are related to taxes and may depend on when contributions are made as well as when withdrawals are made. Speak with a financial planner to help you determine the IRA best suited to your personal needs.
Young professionals may want to keep more of their retirement funds in stocks and aggressive accounts to earn more. As one gets older and closer to retirement, a conservative approach is more prudent.
Advisors may suggest older professionals then begin investing in bonds and other less volatile opportunities.
Professionals of all ages can speak with a financial planner for more information regarding retirement savings. In addition, options to invest through an employer can be discussed with human resources personnel.