Regardless of where you are on the career spectrum, retirement planning should be on your radar:
- Recently graduated, just starting down a career path
- Young couples or parents considering home purchases and school tuitions
- In your peak earning years
- Approaching retirement
Financial Challenges of Newly Graduated Young Adults
The first post-graduation reality that many young adults will face are the financial obligations. Even those lucky enough to have found well-paying, full-time jobs may be dealing with college loans, car payments, rent – how can you even begin to set aside money when most of your paycheck is used to pay bills? And why should you care about putting away money for a retirement that is still decades away?
The best answer is: your youth works to your advantage. Money saved or invested now has decades to compound – that is, whatever interest is earned is re-invested thereby growing your nest egg. Over time, the potential earnings can grow exponentially. If your employer offers a retirement savings plan, enroll in it. Even if you can’t afford to contribute the maximum, you can contribute something. As you start to pay down your debts, increase the amount of your contribution. Take a look at these charts illustrating examples of how compounding can grow even a modest investment over time.
When it’s Time to Settle Down and Start a Family
When it’s time to pair off, maybe purchase a house and start a family, your financial challenges also grow. Now you have mortgage payments, higher gas and grocery bills, costs associated with home maintenance and repairs, health care. If you have kids then there may also be child care costs, school tuition and/or sports activity fees. All of these expenses now compete for your income, with little extra to put away each month for retirement.
It’s tempting to put off investing for the future with so many immediate needs tugging at your wallet, but stay diligent. Make finances a part of your planning and keep them top of mind. For example, if you are considering taking time off to raise your children you want to consider what the financial impact will be – not just now, but for the long term. Leaving the workforce may constrict your capacity to put aside money for retirement, and it will also affect the size of any Social Security or pension benefits you may be entitled to down the road. Consider increasing any employer-sponsored retirement contributions leading up to your leave, or think about having your spouse adjust their contributions to offset what you’ll be losing during the years you stay at home.
Read Part 2 of this piece, addressing your peak earning years and how to put them to use to start planning for your retirement.