When it comes to planning your retirement, one thing is sure: it’s never too early to start saving.
But why precisely is this the case? The short answer is that procrastination in this matter will actually cost you money.
So, even if you start small, it’s better than not starting at all.
Here are the top 5 reasons why you should start retirement planning as early as possible.
1. Compound Interest
At the beginning of your career, retirement may seem so far away that you can hardly imagine it. You might think that you’re still young and that there is still plenty of time. At this point, saving for retirement may feel like you’re wasting your money.
However, building good saving habits right away has numerous benefits. One of them is the compound interest – the interest earned on your initial savings and the reinvested earnings.
If you’re not familiar with this concept, it actually means that a sum of money grows exponentially due to interest and builds upon itself over time.
Here is an example to understand the basics: If you invested $1000 in a mutual fund and the fund earned a 7% return for the year, you’d earn $70, and your investment would be worth $1070. If you got a 7% return the next year, your investment would then be worth $1144,9.
Initial money can really add up over the years on your retirement account – for 30 years with the average 7% return, and your invested $1000 would grow to more than $7600.
So, compound interest can help you earn far more than what you’ve started with, especially if you have enough time to let it work its magic over years or decades. This way, you will find it much easier to fulfill your long-term savings and investment goals.
2. Fewer Responsibilities
If you talk to anyone nearing their retirement, they will tell you years just slipped by. They will probably have a few regrets that they haven’t started building their nest egg earlier in their lives.
It’s much easier to plan your retirement when you’re young and still have fewer responsibilities. You’ll probably acquire other expenses as you get older, such as saving for your child’s college fund or a mortgage.
So, even if you don’t earn a lot at the beginning of your career, you have time on your side, and when it comes to savings, time is your ally.
3. You’ll Acquire Better Financial Habits
Savings is wisdom – the sooner you learn how to save, the better your financial decisions will be during your life.
Setting aside money is a great habit, but it is tough to learn after a lifetime of recklessness. Even if you put aside just a little bit of money, you will learn to use your resources toward a financial plan and reduce wasteful spending, which will be a massive benefit over time.
Habits such as saving and financial planning can make the difference between living in debt and financial freedom. By acquiring these habits at an early age, you will strengthen your financial position.
4. Less Stress
Planning for your retirement is an important step in your overall financial wellbeing, benefiting your overall well being as well – your physical and emotional health.
Financial stress can be linked to many health-related conditions such as diabetes, heart disease, migraine headaches, and poor sleep. Money worries can also cause mental health problems, such as anxiety and depression, and lead to unhealthy coping behaviors, robbing you of peace of mind to enjoy your life.
5. You Can Reduce Mistakes
Extensive planning can be precious when you know your family goals and ambitions. With less time to plan and save, you must be very precise in your decisions, as a single mistake can destroy your entire savings plan. When you start planning for your retirement early, you’ll have more time to learn and will be able to find the strategy that works well for you. Nobody wants to lose money they have saved; still, you will give yourself a higher margin for mistakes.
There is no reason strong enough to postpone your retirement planning. With more time on your side, you can plan your dream retirement and slowly build your nest egg.