When I was in my early 20s, just starting out in LA, I landed a job in Corporate America at Skechers Corporation. I was making about $10/hr., working in the mailroom of this billion dollar shoe company; and I was flat broke! It was very expensive to live in LA, even more so now. So when HR at the time told me about their 401K plan, I passed, because I barely had enough money to eat, and go out with friends. I WAS A FOOL! Unfortunately I did not understand the time value of money, and the secret to real wealth and success then. I have a 401k now, but I started in my late 20s. I missed out on a good seven to ten years that could have given me a very big head start; but that’s OK. I’m telling YOU this story, because I, like so many others, didn’t know better; but YOU might still have time to get your retirement act together, so when you reach that 2nd act, you have a leg to stand on. Here are 4 reasons why you have to start funding your retirement NOW.
These three charts here will explain very succinctly why you need to start as early as possible with funding your retirement. When studying for my MBA and going through Financial Peace University, I heard story after story about compound interest. It works in two ways: for you and against you. If you are saving and receiving compound interest, then it works for you. If you are spending with borrowed money (credit card; car loan) and paying compound interest, it is working against you. When it comes to retirement Ben Franklin said it best, “Money makes money. And money that makes money makes money!” You don’t have to be an Economics professor to understand that saving, and getting interest for it is a good idea. Dave Ramsey also shows another great example here, of the perils of waiting to start funding retirement! Start! Now!
Many employers offer a matched contribution, up to a certain point, for their employees as a benefit. The company I work for now has a generous match, which I take part of. If you do not take advantage of this great employee benefit, you are essentially leaving FREE money on the table. Who would want to leave money just lying there? Don’t delay!
There are many great tax advantages when it comes to retirement savings as well. Most jobs have a 401K, which is an individual retirement account that you can contribute to with pre-tax dollars (saves you in tax $$ by lowering your net income), in the hopes of keeping it in that account until you’re 59 ½ or older (there are penalties if you withdraw the money early). Taxes are deferred until you take the money out in retirement. There is also a ROTH retirement account, which you can fund with after-tax money, but when you withdraw it in retirement you do not have to pay taxes on the growth (interest). Both of these types of accounts are used to purchase stocks, bonds, mutual funds and other financial instruments within your retirement account to hopefully gain interest. I love the ROTH and I personal have a ROTH 401k through work that is doing fairly well. I highly recommend it!
How many old people have you heard of that when they got to retirement they could not make it on social security alone? Unfortunately, not all elderly people are as resourceful as a Col. Sanders, who created KFC for this very reason (he could not survive on just social security alone at that time). It is sad to see someone’s grandparents, begging on the street; not getting the medical attention they deserve because of lack of funds. It can shorten their retirement life, making them have to struggle through their Golden Years, becoming a burden to their children or grandchildren in the process. I feel if you have the opportunity to seize this information and use it to your advantage, that you can change your family tree, and retire with dignity. This means not having to worry about how you will pay your bills in retirement, because you built a nice nest egg, through more than adequate financial planning.
Last Word:
If I can beseech you enough, PLEASE start funding your retirement if you have not already TODAY, no matter what age you are. It is always better late, than never. If you are funding your retirement, keeping working with a financial planner or learning on your own how to better manage it, so that you can make sure your nest egg is there when you need it most. I am behind the ball missing over seven years of savings, employer matches, and tax advantages but I am getting them now, which is great! It is one of the best decisions I ever made and I know it will be the same for you too.