I’m 34 and I’m still getting my BA, I don’t have a career yet I just work at a coffee shop right now. A friend of mine who is a few years older sometimes tells me I should start saving for retirement. How? Why? I don’t make much money so I wouldn’t be able to put much away. Is it really something I should worry about right now?
In: Economics
Like other people mentioned, compound interest adds up over time. The market as a whole generally goes up 7% a year. There are low cost index funds that buy a bunch of the market, that’s definitely the way to start versus buying a few stocks and guessing what’s going to do well.
So ignoring fluctuations, your money will go up 1.07 times per year. It doesn’t seem like much, but it means that every $100 that you can invest now will be worth (roughly) $761 in 30 years from now, when you’re near retirement. Plus you’re going to live _into_ retirement, so at 40 years out (when you’re 74) every $100 you can save today will be worth $1497.
I’m older than you, about 20 years from retirement. Every $100 I invest will be worth $387, and I didn’t save much when I was younger so I’m trying to catch up despite the lower multiplier. In retrospect I wish I had saved at least something in my twenties, with that sweet 14.9x multiplier, but hindsight and all that. But the point is that investing early makes a significant difference, deciding to save for retirement at 50 can make for a rough time.
You can do this investment in what’s called a taxable account, where you can sell the stock at any time but you pay taxes on it. Or you can do it in one of several types of retirement accounts (401K, IRA, Roth IRA, etc). You still buy individual stocks or index funds in the account, but you can delay paying taxes on your profits, which can be a benefit. The downside is that you often can’t get to the money until retirement age without an additional penalty (they really want you to use it for retirement).
A single concrete recommendation is to look at a Roth IRA. If you aren’t making a ton of money right now (like under $52K single thus in the 12% or lower tax bracket) it’s probably the way to go. But don’t take my word for it, read up on it. I’m a fan.
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