Save For Retirement When You Are Young

March 26, 2010

If you’re in your 20s or 30s, retirement is probably the last thing on your mind. After all, how can you save money for a date far in the future when you have other pressing priorities, such as getting out of debt and maybe saving for the down payment on a house?

But if you had any idea how lucky you are to have so much time on your side, you’d take the retirement issue more seriously. Consider this: Let’s say you want to retire at age 65 with a million dollars. If you start saving at age 20, you only have to save $270 per month (all calculations assume 7% investment returns). If you wait until you’re 30 to start saving, you need to save $555 per month. If you wait until you’re 40, you have to save $1,235 per month. Obviously, the sooner you start saving, the less you need to save to reach a one million dollar goal.

If your company offers a 401(k) plan, sign up for it and contribute as much as you can afford. If not, open an IRA and contribute at least $3,000 every year. If you start when you’re 30, you’ll have over $450,000 at age 65. And don’t be afraid to invest for growth. With your long time horizon you can tolerate market volatility in an attempt to earn higher returns

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