When it comes to saving for retirement, it can be tempting to procrastinate, especially if you’re just starting out in your career and you’re not yet making a lot of money. Retirement feels like it’s ages away and you might feel like you just can’t afford to put money away for it right now, but the real question is can you afford not to?
The Long Game
If you’re using something like a 401(k) and/or IRA to save for retirement, then the money you put into it is getting invested so you end up with more money than you put in. But the way investing works is that it’s a long game. Investments don’t turn a small amount of money into a big pile overnight. Most investment strategies take time before you get the results you want, and the more time you put into it, the better your results will be.
Are You Increasing Your Investments?
The traditional retirement saving advice has been to put away 10% of your income into savings, but now experts have started saying that’s not enough – you need to put away closer to 15% or even 20% of your income every month in order to have enough to keep you financially stable throughout your retirement.
But that’s assuming you start saving as soon as you start working. That means the longer you wait, the more you’ll have to put into savings in order to get the same results. Depending on how long you wait, that could mean you should be putting away as much as a third, or even half your income for the rest of your working years. Will you be able to do that? Are you confident that one day you’ll be making so much money that you’ll be able to live on just half your salary?
Maybe someday you will be able to make much more money than you spend and that would be great, but what if that doesn’t pan out? What’s your retirement strategy then? And how will it be affected by the fact that you didn’t start saving early enough?
The other thing you need to keep in mind when it comes to investing is market volatility. Just like you’ll have good days where the market goes up and so does the overall value of your portfolio, there will also be days when the market doesn’t perform as well and your portfolio will suffer as a result. The ups and downs of the market are inevitable and you need to be prepared for that.
Honestly, the best reaction to a market downturn is to invest more money into the market so you can reap the benefits when it goes back up. At the very least you should leave your money in the market and wait for it to go back up and start returning all the money you lost (and often more). Too many people panic and pull out of all their investments when the market starts to go down, but that’s the exact wrong approach. You need to be patient, and if you started saving when you were in your 20s, then patience shouldn’t be an issue. But if you waited too long to start saving for retirement, can you afford to be patient?
If all of this sounds confusing, don’t be afraid to reach out to talk to me directly. I’m here to give people like you the knowledge and tools they need to achieve financial stability on their own – not with a financial planner.