How to plan early for a secure retirement
Posted by mandyf on September 19, 2012
How early is too early to begin planning for a secure retirement? The answer is never. It is never to early to start not only planning but actively taking charge of your financial destiny in regards to a secure and hopefully plentiful retirement nest egg. Now that we have established that, how does one go about that?
Granted at eighteen and for most just finishing high school, retirement planning is not on the tip of anyone’s tongue. At that age we tend to believe something will happen down the road to secure our future, or we realize we will need to do something, but not so young when things like going out or buying a new outfit seem so much more attractive. The fact is however that is the perfect time to start and it is far easier than you might think.
When I graduated high school my “Big” gift was that my parents opened up my IRA (Individual Retirement Account) and made the maximum contribution, two thousand dollars back in those days. Part of me appreciated this gift, and the other part really wished they sent me on some sort of vacation or just gave the money to blow on whatever struck my eye. They made the agreement that so long as I was in school and performing well they would continue to do the same each year. Now I look back over twenty years later and am more than thankful for this. It started me on the path of saving and taking charge of my own future rather than hoping something would be available later.
“But what if my parents can’t or won’t do this for me?” you ask. Simple, do it yourself. You’re an adult and it is time to act like one. You have to realize social security may not be a viable option or even available at some point in the future. You may change employers a few times as an adult which isn’t so uncommon now, and not have the benefit of a solid plan paid into over thirty years or so. As a young adult starting out how do you then take charge?
First you have to identify what you have coming in and how much you can afford to place aside for retirement each month. It doesn’t take much to open an IRA, in fact many solid no load (Fee inclusive) funds can be opened for as little as fifty dollars with a monthly contribution of twenty five dollars to follow. Sure this doesn’t sound terribly glamorous but it is effective. The twenty five dollar monthly deposit is equal to giving up about two cups of coffee per week which is extremely reasonable. While the minimum first year contribution of two hundred and seventy five dollars may not seem like
it can do much for you, consider this: That contribution made at age eighteen invested conservatively can easily and safely climb to over seventeen thousand dollars at full maturity at age fifty nine and a half.
Now that doesn’t seem too bad does it? If you have a month you can make a larger deposit such as over the summer when you may be working full time do so. It wouldn’t hurt to drop a little extra in on birthdays or the gift giving holidays either. Even an extra few dollars early on can make a huge difference. While in the military I encouraged our junior airmen to follow this plan and to buy a savings bond at least every other month. While these don’t provide quite the same return they have certain other advantages concerning paying for education and such things which can be highly useful, and are always liquid should an emergency arise. The advantage over keeping bonds instead of cash is it causes the bearer to consider whether cashing it is really necessary and helps curtail impulse buying.
Why it is important to control your own destiny as early as possible in regards to retirement planning is quite simply that the longer you give your money to work for you the more it can do. Trust me when I say there will come a day when you’ve been in the workforce fifteen or twenty years and you can look at your own personal IRA and have a great sense of security. This security is not only knowing that if your company folds and your pension goes with it (Not as uncommon as you may think), you still have a solid personal backup plan. It helps give you the freedom to choose what direction your career will go in, not what you have to do to vest a couple extra percentage points on your company pension because it is your only source of retirement income. Most attractive to me is it gives the freedom to choose how and when you will begin tapping this resource. Start early, stick to your plan, and make increases as possible until you reach the annual maximum deposit. Slow and steady may not be sexy, but it is a reasonable and safe way to get the job done that anyone can follow with a little discipline.