In my experience, most young people are so busy dealing with the present that they aren’t putting much thought into saving for retirement. However, it’s important to consider what retirement will look like for you, even at a young age. When will you retire? How much will you spend? Do you want to leave an estate? Die broke?
Life doesn’t work in a straight line – contributing a set amount every year doesn’t ensure a consistent rate of return every year; savings contributions could be put on hold for a while, while raising children, paying off high interest debt or for a variety of other reasons. So don’t get discouraged if you aren’t saving 10% of what you make, or what some online retirement calculator says you “should” be. Life happens.
Estimating retirement spending while in your 20's or 30's is very difficult. We don’t know for certain what our life will look like five, ten, twenty years down the road.
That being said, here are four areas I believe young people should focus on regarding retirement savings:
Understand how much you spend and where all your money goes.
Focus on spending less than you earn (or earning more than you spend!).
Establish both short-term and long-term financial goals.
Set up affordable automatic contributions into long-term investing. Try to increase this amount each year.
The best way to save for retirement is to set up an automatic contribution to come out of your bank account consistently. Focus on saving regularly instead of the HUGE end result. Treat saving for retirement like paying a bill to your future self. You need to pay your bill every month or “future you” runs the risk of outliving your money.
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