When it comes to our financial future, particularly our retirement savings, we can’t simply rely on winning big through a bonus package comprising $200 free money, as lovely as that would be. Instead, we have to carefully plan and set goals for our future financial well-being. This involves starting early, but what does starting early mean, and why is it important? This article will aim to answer these questions so you can set yourself up for financial stability for a lifetime.
The Ideal Time to Start Saving
The idea that it’s never too early to start saving for retirement has remained popular for a reason: it holds true. This means that we can start saving in our 20s or as soon as we start earning an income, even if retirement feels too far away to seriously think about or plan for.
What if You Haven’t Started Saving Yet?
Starting today is better than not starting at all. You’ll have more time for your savings to grow if you start today rather than a month or a year from now. This means that even if you’re closer to retirement than you are to starting your career, you can still do your future self a favor by developing a saving and investment plan.
You can begin with a financial advisor or a robo-advisor to guide you through a financial plan if you’re unsure where to start or how to approach the process. Remember, just as it’s never too early to start saving, it’s never too late to start, either.
Why Is Starting Sooner Rather Than Later Beneficial?
There are many reasons why starting as early as possible in life is beneficial. The overarching reason is that it gives us time to contribute to and grow our savings. Below, we’ll explore why time is important in our retirement planning and other key considerations.
Compound Interest
Compound interest is how our money grows once it is placed into a savings account (ideally a high-yield savings account with low banking fees) or invested. When our money is invested or held in savings, we earn interest, which can be reinvested into our savings or investments, earning us even more interest. It essentially becomes free money, helping us reach our long-term savings goals faster. The more time we can give to earning compound interest, the more we’ll get out of it.
Investment Stability
Investing always comes with some risk, but time can help minimize this risk. The more time we allow investments to ride out the stock market as it rises and falls in value, the more likely they are to be resilient to drops in the market and yield a positive return for our retirement fund. Once again, this shows that time can significantly benefit us.
The concept of compounding discussed above also applies to investments, allowing us to reinvest earnings to generate even more returns.
Investing is often considered the best way to keep pace with inflation, which affects everyday necessities like food, utilities, and other items or services we purchase regularly. While inflation has a bad reputation, it is also why investments have the potential to earn us more than a simple savings account.
Financial Peace of Mind
Finances are an incredibly common source of stress, affecting nearly half of all Americans. The impacts of this stress can be far-reaching, harming our mental health and affecting our physical health by disrupting our sleep patterns and causing headaches.
Our retirement savings will ideally provide for us for a long time once we stop working. This means we will need a significant amount set aside to meet our needs. Naturally, this pressure can be stress-inducing, adding to the pressure we already feel about our financial situation.
One way to minimize this pressure, and hopefully the stress that comes along with it, is to start contributing early to set ourselves up for success. This will help us achieve peace of mind during both our working and retirement years, allowing us to enjoy life more fully.
Healthcare Costs and Unexpected Expenses
As we reach retirement age and beyond, it is common to require more healthcare, which can lead to increased expenses. We should consider this in our retirement planning and savings to be equipped to handle both expected and unexpected health costs.
Part of this planning may be investing in health insurance, but there are things we should have a comfortable financial cushion for that may only be partially covered or not covered at all, such as needing to move into a retirement or assisted living home.
Improved Quality of Life
When we get to retirement age, odds are we’ll want to do more than simply pay for our necessities. We’ll want to lead full lives and have the financial freedom to enjoy experiences like going out for dinner with friends and family or traveling to warm, sunny destinations.
Money may not buy happiness, but it provides more opportunities and options, allowing us to embrace a high-quality life and enjoy our post-working years to the fullest.
Conclusion
When it comes to saving for retirement, the idea that we can never start too early holds true. Saving early in life gives us the time to grow our retirement nest egg so that we can comfortably enjoy retirement and be able to afford the things that bring us joy. Even if we’re past our 20s, 30s, or 40s, and it feels like retirement is just around the corner, setting aside time today to start saving is better than waiting.
