According to U.S. News & World Report, less than one third of workers age 25 and under contribute to their employer sponsored retirement plans. That’s not a hard statistic to understand. When people are in their early twenties, many folk are still trying to figure out what the heck they’re going to do with their lives and what careers they want to pursue. Retirement is often the furthest thing from their minds.
This is a huge mistake.
Why? Two reasons: compound interest and free money.
Think of compound interest like a snowball on a steep hill. Start with a few snow flakes at the top of the hill and roll them down. As they roll, they pick up more and more snow becoming larger and larger. By the time those few snow flakes get to the bottom of the hill, they’ll be a massive boulder of snow. However, if you start those same snow flakes in the middle of the hill, they won’t grow to be nearly as big as the one that started from the top.
This is what compound interest does to your money. Opening your investment account for retirement when you are young is the equivalent of starting the snow ball from the top of the hill. The younger you begin investing – the higher up the hill you are – the bigger the snow ball will be when it gets to the bottom – your retirement age.
We all like getting something for free. That’s why it’s so surprising how few people take advantage of retirement plans where their employer will actually match the funds the employee deposits in the accounts. Granted, the level of the match will depend on the corporation. However, if they only match one dollar, that’s still one dollar more than what you had. Going back to our snow ball analogy, it won’t take much for that dollar to start tumbling down the hill collecting more dollars as it goes growing bigger and bigger.
Now that we’ve covered why you should invest in a retirement account, let’s a take a look at the practicality of investing.
Chances are good that you have all kinds of debt hanging over your head; from student loans to credit cards or auto loans. It is absolutely important that you stay on top of these payments, but it’s just as if not more important to begin saving for retirement.
A little bit of savvy and a whole lot of discipline could mean the difference between a $1.6 million retirement or needing to work to just to make ends meet for the rest of your life.
As with anything else, saving for retirement while still paying off debt is all about balance. It may be difficult at first, but the rewards are huge. And just remember…as a young investor, you have the secret weapon of time on your side.