Start Saving For Retirement Now And You Could Be A Millionaire By Age 65
A smart retirement savings plan takes advantage of compound interest and 401K matching, says personal finance expert and author Catey Hill.
Being young is about living in the now. So for women in their 20s and 30s with everyday expenses, student loan debt, and approximately 40 years to even start worrying about it, saving for retirement is the last thing on their minds. Besides, why do today that which can be put off until tomorrow?
But according to financial experts, that’s exactly what you shouldn’t do. Catey Hill, personal finance expert and author of Shoo Jimmy Choo! The Modern Girl’s Guide to Spending Less & Saving More, emphasizes that starting to save at a young age can have a tremendous impact on your future.
“The numbers work out to start early,” she says, “Compound interest works in your favor.”
Hill is referring to the principle where interest is added to an initial deposit, the sum total of which then earns more interest, and so on. Basically, your money makes money, creating a snowball effect and adding significantly to your savings.
For example if you start saving $300 a month at age 25, assuming an average 8 percent return, you’ll have $1 million at age 65. However, if you were to put away the same amount at age 35, earning the same rate of interest, you would only have $440,000 by the time you retire. That’s less than half of what you’d make if you’d started 10 years earlier.
Finding the money to put towards retirement can be challenging, but there are fiscal behaviors you can affect today that will lead to a better retirement tomorrow.
An easy way to begin saving is to take advantage of your company’s 401k match. Many employers will match your pre-tax contributions to their retirement fund.
“So even if you’re paying down debts [or] dealing with other expenses, that is free money and you don’t want to miss it,” Hill advises. Then, once you’ve started contributing, “Make your savings automatic, because if [the money is] sitting there, you’re gonna touch it.”
To free up money for savings, it’s also important to know where you spend and where, in particular, you spend too much. How many times a week are you going out for drinks? Are you regularly splurging on new outfits?
“It’s not the most fun examination, but look and see what you can cut,” says Hill, who recommends online budgeting tool Mint.com to track spending patterns.
A simple way to cut costs is by taking a look at what you pay monthly in rent, which Hill identified as being 30 percent of one’s income, and even more so in big cities where the cost of living is sky-high.
“If you can, get a roommate or find a less expensive place,” Hill suggests.
While she understands this reluctance, Hill stresses the importance of keeping your goals in mind.
“It’s not easy to cut living costs, but you have to make priorities,” she says. “And you have to make saving for retirement one of them.”
Laurie Kamens is a freelance writer living in New York. She has written for several publications including The New York Times, The New York Post, The Jewish Daily Forward, Flavorwire, Interview Magazine, and Long Island Pulse. Follow her on Twitter @lauriekamens.