People who are just starting out their careers are probably too excited to embark on their new journey that “retirement” is not a thing that immediately comes to mind. Many think that this stage in life is too early to spend worrying or thinking about it, but there are reasons why it is important for young people to plan for their retirement.
Once you go off on your own and leave your parents’ house to be independent, it is now time to be more serious about managing your funds. Your money will be your own responsibility and as a result, your spending and saving should now be closely monitored. If you are looking for retirement planning advice, as well as financial advice for young people, then this article will help you build the required financial foundation that is essential for retirement.
Invest as Early as Now – Early Retirement Planning For Young People
Those who are in their early twenties are lucky because time is on their side. Perhaps the best retirement advice that can be given to young people is that one should start investing a part of their income, no matter how small, as early as now. Because of compound interest, the $200 you put in your retirement fund every month can eventually become millions when you retire. Realistically speaking, though, not that many adults can allot $200 a month into their retirement savings because of their necessities and unexpected expenses.
While it is recommended that you allocate 15% of your income for your retirement, it is often hard to fulfil. You don’t need to stress yourself over percentages, though. What is important is that you save something even if it is less than the recommended amount. Even little contributions to your 401(k) or Roth IRA plans when you’re young will be able to do great things for you in the future. Besides, you can always choose to invest more when your financial situation becomes better.
Enroll in the 401(k)
Most companies offer 401(k) plans to their employees. If your company offers such plan, sign up for one immediately. Your automatic contributions to this plan may have you managing a tighter budget, but starting it at a young age will help you grow your wealth effortlessly. In addition, your contributions to your 401(k) are tax-exempted.
When you need money for emergency, it might be tempting to withdraw money from your 401(k) funds. However, doing so will leave you paying for a 10% early withdrawal fee and you could also be paying up to 20% for income tax to your employer for that. The amount you’ll get is not worth what you’ll lose:
Taking Robert Kyosaki’s advice on mutual funds, a 401(k) is not the ideal choice for retirement. Check out our top rated retirement funds with low fees, fast growth, and solid stability.
Fund a Roth Individual Retirement Account (IRA)
If your company does not have any 401(k) plans, you can go for a Roth IRA, which is especially advantageous for young people. This is because Roth IRAs are post-tax investments that can be withdrawn tax free, meaning that when you reach 59.5 years, you will be able to withdraw from your account without paying any tax. This is especially a great advantage if you find yourself in a higher tax bracket in the future.
You are allowed to invest up to $5,000 in your Roth IRA per annum until you’re 50, and then $6,000 per annum after that. No, it doesn’t mean that you need $5,000 to get started. You can actually have the minimum investment requirements waived if you enroll in an automatic investment program.
Invest in Precious Metals
While having a 401(k) and a Roth IRA will keep you financially safe, having a diversified portfolio will usually keep you more secure. You can diversify your traditional and Roth IRAs by including precious metals in it. For many years now, people have considered precious metals as a buffer versus inflation and financial instability. This is because precious metals like gold and silver are more likely to retain their value compared to most assets.
Trends in financial history suggest that the values of precious metals have low correlation with the market changes that significantly affect other assets. Precious metals have therefore kept people’s savings safe from unpredictable events.
Investing in gold and silver is a great way to diversify your existing IRAs. You even have the option to transfer your current IRA to a precious metals IRA without having to deal with penalties or taxes. At the end of your term, you may opt to cash out your precious metal holdings or take hold of physical bars or coins that you can sell in the future. Aside from having a more balanced portfolio, you also enjoy the flexibility that a precious metal IRA can provide.
Starting investments at age 25 can make a huge difference compared to when you start at 35. For example, if you invest $200 a month at 25, you earn a certain percentage from that money. When you turn 65, that amount will be more than $500,000. However, if you only start saving when you’re 35, and assuming that the monthly savings and interest rates remain the same, the money you’ll have by 65 will only be less than $250,000. This just shows that a 10-year head start can make a significant impact on the amount you’ll be amassing in the future.
The best financial advice for young adults is to begin their IRA investments early in life. No one wants to end up with nothing when they get older, so start saving up as early as today.