At What Age Should You Start Planning for Retirement?

 Posted on September 10, 2014 in Estate Planning

Although people understand that retirement is something they should have long-range plans for, many do not start thinking about it until they hit middle-age—and oftentimes even later. However, many financial advisors agree that it is never too early to begin retirement and estate planning needs. In fact, they suggest that setting things in motion when a person is in their twenties is not too early.

To begin, a person first needs to understand the different retirement account options there are, as well as other investment options. Look for accounts that offer compound interest. Compound interest is interest earned not only on the principal amount of fund you deposit in your account, but also on the interest that the account is earning. Earning interest on principal and interest is compound interest.

The U.S. Securities and Exchange Commission provides a free online compound interest calculator on their website that will provide the amount an IRA account can grow. For example, if a 25 year old contributes $200 per month to an IRA, at an average of 8 percent compound interest, in 40 years that IRA will have grown to $626,000. As you get older, and your salary increases, increase the amount of your monthly savings as well.

It is important to make sure that no matter what else is going on, a monthly contribution is made. Many people find it works best to open a 401(k) with their employer and have the amount directly deducted from their paychecks. If your employer offers matching retirement benefits, make sure your contribution is at the maximum the company allows in order to get the most benefit.

A good majority of people in their twenties and thirties have student loan debt. Pay that off as quickly as you can, as well as any other large credit card debt. Another good piece of financial advice, not just for young adults but for all of us, is to not get into the habit of overspending. The more money you spend, the less will be available to put into savings.