It’s Never Too Early to Think About Retirement
Congratulations, you’ve done it! School is over, and you’ve accepted your first professional position. Ready for some retirement planning?
Silly question, right? And it’s a bit of a buzzkill to interrupt the excitement of new possibilities with talk of the getting ready for the end of your career. Yet, as the cliché goes, “Failing to plan is planning to fail.”
It’s totally understandable if you find it overwhelming to consider retirement planning as your career is just beginning. It’s also totally understandable if it’s difficult to find extra income to put toward something so many years away. After all, your present is difficult enough, what with the seemingly endless demands of things like college loan repayment.
Paying back your college loans may be so top of mind, you may not think there’s enough paycheck left to look at retirement planning.
That doesn’t even take into account rent, groceries, car repairs and more, or the desire to use your couple extra dollars to hang out with friends or take a trip somewhere.
However, letting current concerns prevent your looking forward can be detrimental to your financial future.
It’s Good To Be Young
Here’s the beauty of retirement planning at your age: a little can go a long way. Saving as little as 1 percent of your income in your new employer’s 401(K)1 or some other retirement account can pay off big down the road. “That’s because you’re letting time work for you,” said WoodmenLife Senior Sales Manager Daniel Darling, “and money can add up nicely over 20, 30 or 40 years.”
An extreme example, perhaps, comes from Money.com that stated investing $5,000 a year for 10 years starting at age 25 could become $1.5 million by retirement. By comparison, investing similarly at age 35 likely would never bring you the same amount at retirement.
WoodmenLife Vice President of Human Resources Karla Gochenour also emphasized the importance of letting time work in your favor.
“It is a generally accepted principal that someone waiting until around age 40 to invest will need to contribute 3 to 4 times more monthly to get to the same amount by age 60 as someone who started around age 25,” Gochenour said.
She also touched on the problem of little leftover cash young professionals encounter, adding it’s imperative they take advantage of their employers’ 401(K) program.
“Never turn down free money,” Gochenour said. “Contribute at least the amount that provides you with the maximum employer match.”
If retirement planning still seems like something you can’t afford, Gochenour has more insight.
“I would strongly recommend at least trying to contribute 1 percent to 3 percent for a couple of pay periods,” Gochenour said. “Then, you can see the impact to take-home pay. In my experience, the difference is minimal because deferrals occur on a pre-tax basis, and generally this helps reduce the impact to take-home pay.
“Most plans offer the flexibility to change your deferrals frequently, so you can reduce or stop your contribution if the impact to your take-home pay is more than your budget can tolerate.”
She also suggested young professionals, as an option, roll their 401(k) funds into an IRA if and when they change jobs. Doing this could save money on fees and allow access to a wider range of investments.
Look Into the Crystal Ball
Part of retirement planning is having a realistic target date. For example, Bankrate.com studied American’s ideas about different important financial moments of life, including ideal retirement age. Turns out, 61 is seen as the perfect age to put away your work clothes forever. That’s six years younger than the age at which anyone born after 1960 can retire and receive his or her full Social Security benefits. You can leave the workforce early, of course, but shy of winning the lottery, that sort of approach will take aggressive retirement planning.
Ultimately, Darling said, your present self needs to look at your future self and determine what you want your life to be like when you’re no longer working. What do you want to be doing? Where do you want to be going? Where will you be living? What don’t you want to be worrying about? Retirement planning now can help ensure you have the nest egg you need to give you the best answers to these questions.
1. 401(k) not offered as product. Products offered are IRA variable annuities, IRA fixed annuities and IRA mutual funds.