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Home  > Article

Start Planning for Retirement NOW!

By Experience

Although retirement is at least 30 years away, it is important to start saving now so you can retire in comfort.

As a young worker in your early 20s, your most valuable asset is time. If you're just starting out in a career now, you're likely to have more than 30 years before you retire. By setting aside a small amount of money in a 401(k) or other retirement savings plan, you'll have decades to accrue interest.

That's the key for young workers who wish to retire with a healthy bank account- small money stashed away now will compound interest and add up for you over time. Especially, if your employer matches part of your savings, your investments will compound even more.

Unfortunately, this message doesn't seem to be getting through to many young workers. A new survey by Hewitt Associates found that only 31% of workers ages 18 to 25 who are eligible for a 401(k) participate in their company's plan.

That compares with 63% of workers 26 to 41 and 72% of baby boomers, Hewitt said.

Among Generation Y workers who participate in a 401(k) plan, the average contribution is 5.6% of pay. Companies typically require workers to save at least 6% to earn a full company match, so a lot of young workers are leaving money on the table.

Despite the low savings rate, nearly 90% of Generation Y workers believe they will be able to maintain their standard of living in retirement. Only 69% of baby boomers think they'll be able to maintain their standard of living when they stop working.

Younger workers' optimism about their retirement security reflects some worrisome assumptions:

Nearly 65% of Generation Y workers say they expect to receive a monthly pension payment when they retire.

The reality: Traditional pensions are disappearing fast. The reality: When you put off saving, you reduce the amount of time you could be compounding interest. You'll have to save more (a lot more) in less time.  

What does that really mean? Here's an example form Choose to Save, a public education program. Suppose you want to save $100,000. If you have 20 years, you can reach your goal by saving $3, 272 a year and earning a 4% annual return. If you put that off, and shorten your time frame to 10 years, you'll have to save $6,559 a year and earn 8% annually to acheive the same goal.

Barriers to Saving

OK, you're young, you have legitimate expenses like: student loans, credit card debit, rent and food. The average college graduate has more than $17,000 in student loans, according to an analysis by the Center for Economic and Policy Research. Your day-to-day needs can interfere with your ability to save.

That said, 61% of young workers also cited "lifestyle purchases" as an impediment to saving.  Purchases like an iPod, big screen TV, and XBox are not required for your day-to-day living. In these lifestyle areas, you can find opportunities to stash away some money towards retirement.

Remember, start saving now, and you'll be in a stronger position later in life. Partake of a company match in your 401(k) if it's available. The best asset you have as a young worker is time. Use it!








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