Not enough Americans are saving for retirement. A shocking number of studies has revealed that most Americans don’t have any money saved up for retirement at all.
As important as it is to live in the moment, it can be a big mistake not to squirrel some money away for down the line. Saving for retirement doesn’t have to be taxing or difficult either. If you start young, you can make your retirement savings plan much easier.
The more you invest earlier on, the easier time you’ll have over the entirety of your life. Read on, and we’ll walk you through the benefits of starting a retirement plan while you’re still young.
You Can’t Predict the Future
Many young people across the country view the future with a sense of naive optimism. While this is a positive world outlook to have, it can result in trouble down the road.
The fact of the matter is, many people struggle financially when they reach retirement age. The reality of these people’s lives compared to the vision in many young people’s minds is stark and frightening.
You might believe that things will just work out for the best, but it’s impossible to predict what kind of financial hardships may befall you in the many years to come. The last thing you want is to not be able to afford housing or basic needs when you’re too old to work.
You won’t want to have to move in with your children or rely on them for your financial needs. And you won’t want to have to rely on the welfare system if you get sick and need to afford medical bills.
All of these things can be avoided if you save up and put some money aside now for your future. Planning today is the best thing you can do to aid future you, forty-some years down the line.
If you want to be really forward thinking, create a list of expected expenses for your retirement years. This can help give you a number to aim for when saving.
The Helpful Nature of Compound Interest
IRA stands for individual retirement account. An IRA is one of the best retirement tools out there because of the compound interest.
Compound interest allows you to make more money off your existing money over time. Compounding is when your money is reinvested for the opportunity of obtaining even more money.
Just like with a business bank account, your IRA balance should increase each year. You can read more details about business bank accounts to see the similarities.
Every year there is money in your IRA account, your balance is automatically increasing via interest. This is true even in rainy weather years where you can’t contribute more to your retirement plan.
Interest is then earned on the previous years’ interest and so on for years and years to come. Your total balance should always be increasing.
The earlier you start putting money away into your IRA, the more you’ll be able to benefit from the help of compound interest.
Reduce Your Income Taxes
If you make contributions to an IRA account, it actually reduces the income that you might owe to the federal or state government. These contributions are tax-deductible, meaning that they reduce the amount of income tax you’re required to pay.
The amount of money you can save over the years by contributing to your IRA is stunning. The best part is, when you pull this money out of an IRA at the beginning of your retirement, it won’t be taxed. That’s the beauty of the IRA system.
A Number of Investment Options
IRAs frequently have greater investment restrictions than other retirement plans, such as 401ks. Most IRAs have a limit of $6,000 that you can put in each year.
But what they lack in high limits they more than make up for in investment opportunities. This means you’re more likely to find something solid to invest in that feels acceptable for your preferred level of risk and reward.
You’ll be with your IRA account for the long haul, so you’ll understandably want to feel secure in your investment options. Investing in an IRA also helps you to avoid excessive fees and ensure that your money is actually growing over time.
If you start an IRA while young, you might not have a strong sense of what lies in your future. Luckily, with so many options available, you can always switch paths and invest in something else down the line if you need to.
It’s There in Case of Emergency
The unpredictability of the future is something we’ve mentioned quite a few times in this blog post. But the importance of understanding proper planning can’t be understated.
You never know what’s going to happen in life. Great success or great tragedy can lurk around every corner. The great benefit of an IRA is that you can pull your money out early if need be.
That means that if you’re ever stuck with a terrible illness, you’ll have access to the money you’ve saved. If you meet a certain set of requirements, you may be even to pull this money out with no additional costs or taxes.
You won’t want to pull your money out early, of course. Not if you don’t really need it. But with the long road of life ahead of you, it’s never a bad idea to have some money saved somewhere just in case.
Starting Your Retirement Plan Young
There’s no reason to wait to start a retirement plan. Saving money for your future is one of the smartest things you can do in your early years.
Want more financial advice? Check out our finance section for more information.