We understand: Retirement is the last thing that you want to think about when you’re young, particularly when you’re just at your 20s. However, thinking about retirement is a crucial move as soon as you start earning your own money in order to prepare for your future. After all, saving for retirement at an early age provide more benefits.
When you’re young, you have plenty of time to build up your retirement funds. Ever heard of compounding interest? One of the great things about investing for retirement is that thing they called compounding interest – it’s the ability to generate earnings from your previous earnings. To understand better, here’s an example. Suppose you set aside $10,000 for a retirement account, which earns 10% a year. In the first year, your money appreciates an additional $1,000 because of the 10% interest rate. So your money now is worth $11,000. The following year, instead of earning an additional $1000, your money appreciates an additional $100 more because your earnings from the previous year grow by 10%, too! So the following year, the amount of funds you have in your account grows to $12,100. If you let your money stay in that account, your $10,000 investment would grow to nearly $300,000 in 35 years without even actually adding money or doing anything. Isn’t that amazing? And the earlier you invest, of course, the greater you will earn.
Of course, that’s only one of the reasons why people are encouraged to invest or save for their retirement. Some of the benefits of investing to retirement plans also include the following: having the ability to save money in terms of taxes, securing yourself and your family’s financial future, and getting a chance to enjoy your retirement age with plenty of money at hand.
Okay, now you’ve decided to start investing for retirement, but the question is, where should you invest?
Where should you put your retirement money?
There are several options where you can invest your money for your retirement, and some of the most common choices are the following:
- If you’re employed, you can put your retirement money into an account that is offered by your employer, such as 401k and 403b plans. These types of retirement plans are a great option because they are tax-deferred, which means you do not pay taxes on them until you withdraw them.
- If you’re self-employed or you’re employed but your company doesn’t offer 401k or 403b plans, you have an option to invest in individual retirement plans, such as IRAs. IRAs also offer the same tax benefits, like 401k and 403b plans, but eligibility requirements may differ. If you’re in Australia, you can also consider investing in self-managed superannuation fund, wherein you get the ability to take control of your own funds and save money for retirement.
- If you want better options and opportunities to earn much higher income, consider using your money in business, putting it in real estate, or investing it in stock market.
How to get started?
Just like in business and other ventures, saving for retirement is not easy. You need to create plans, find strategies, and have a great deal of patience and confidence to become successful. Before you start investing, we recommend you to read books and materials first about retirement and investing in order to understand the concept behind it. You would also want to check websites and listen to podcasts to familiarize yourself in the world of finance. Of course, getting the help of a financial expert and tax lawyer is also crucial so you’ll be effectively guided when choosing retirement options and making financial decisions.