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
Assuming a 7% rate of return on your investments (good but not crazy good), your money will double every 10 years.
You have about 30 years to retirement, so 3 doubling periods. If you put away $1000 today, you should have $8000 by the time you retire ($1000 doubles to $2000 after 10 years. $2000 doubles to $4000. $4000 doubles to $8000).
Even a relatively modest investment is better than nothing.
This bit is specific to the US so if you’re not American, disregard.
Since you’re not making much money, open an IRA. You put after tax money into an IRA. That means your income taxes come off the top and you put what’s left to your expenses and an IRA. IRAs grow tax free. So no matter how much money it turns into in the future, it’s yours free and clear.
A 401(k) comes out before your taxes (like employer provided health insurance premiums). That’s great for lowering your taxable income and if you have an employer who matches, it’s free money. But when you cash in your 401(k), you pay income tax on it.
If you’re not paying much in income taxes because your income is low, you don’t need the tax break of the 401(k).
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