Already picturing yourself on a sunny beach in California or Florida for your golden years?
When it comes to retirement planning, you’ve certainly heard that the sooner you start, the better your chance of enjoying your professional withdrawal without a care in the world. As a matter of fact, working early on toward putting money into a dedicated retirement account comes with several major benefits.
In the following guide, we explain how starting retirement preparations at an early stage in life is a guarantee for a restful, prosperous future.
Don’t Rely on Social Security
For starters, know that the federal Social Security trust fund isn’t designed to fulfill every American citizen’s pension 100%.
Even with this option, you’d still need to come up with around half of your highest income to be able to live comfortably after retirement (and cover all your expenses). Besides, a number of governmental and financial experts are predicting the fund will run out by 2034, which is why putting together a contingency plan is more crucial than ever.
When you choose to start saving early for retirement, notably towards a 401K or a traditional IRA, your contributions will be drawn on your pre-tax income.
Essentially, this means that any gains that you make on the money you save won’t be taxed until you use it later on. What’s more, this money is tax-deductible, helping reduce your current taxable income along with the taxes you might be filing every year.
Evade Large Contributions
In a similar vein, those who begin saving in their 20s or 30s will be spared enormous monthly contributions compared to those who are nearly the end of their career.
Stretching out these contributions over a long period of time (versus when you start contributing in your late 40s or early 50s) is bound to put you in a better position and allow you more financial freedom.
In essence, the idea behind compounding is allowing yourself to make money on your money. When you invest in a retirement investment plan, your contributions can be subject to compound interest, meaning that you can earn interest on each contribution not once, but twice.
Of course, it’s always best to consult with a financial expert for learning how to retire better and allow your money to grow on its own. Retirement planning experts can help you decide which investment opportunities are best and will earn you the most in the long run.
Another benefit of putting together an early retirement account is you’ll be building yourself a safety net, should anything in your personal or professional life not go according to plan.
While it’s not meant to be used early on, the money in a retirement account can save you from bankruptcy or total financial ruin. Remember that there will be substantial penalties if you tap into it early, but inescapably, that’s the price to pay.
Providing for Your Family
Pragmatic savings won’t only benefit you, but your family, as well. They may still depend on you, even after you retire.
Now, when you’ve dedicated a portion of your monthly income to retirement saving throughout the years, you’re allowing yourself to meet your family’s needs in terms of large expenses, education, and more. This is no way meant to “buy” their love and ensure they’ll visit you; it’ll only show you’re still there for them no matter what.
More Disposable Income
Simply put, saving early on for your retirement can increase your net worth and make you wealthy.
With all the money you’ll have put aside over time, you can take on big life projects such as purchasing a condo in a sunny state, buying a boat, traveling the world, starting a collection, get plastic surgery, or whatever you’ve always dreamed of!
Enjoy a Comfortable and Happy Retirement
Combine all the factors above and you’re basically ensuring yourself some prosperous golden years. Unfortunately for those who didn’t have the wisdom to save money, they’ll be scraping to meet their basic needs, and live off government assistance.
In contrast, those who have the foresightedness to save income aside every month and reinvesting it will enjoy the freedom of a relaxing retirement.
All in all, there are 1001 reasons why planning for your retirement early on in life will benefit you in the future. It will certainly require some sacrifices and belt-tightening, but you’ll live off your retirement with peace of mind, still be able to provide for your family, and enable yourself to undertake projects you’ve always dreamed of. In any case, your best bet for a successful retirement plan is with the help of experts who will guide you through the process.