Retirement Advice for the Young
To be young and free without a care in the world. While it's a nice thought, most people end up focusing on their future at some point before gray hair starts sprouting. If you don't, you run the risk of not properly preparing yourself for your next phase of freedom---retirement. If you make the right moves when you're young, you increase your odds of doing what you want in your golden years.
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Go For a 401(k)
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While the instances of having the same job with great benefits for your whole life may be few and far between, you can still aim for a stable gig with one key fringe benefit---a 401(k). If you have a 401(k) at work, not only do you get a serious leg-up on retirement but you also you save on taxes. You can invest a portion of your salary, before your employer deducts taxes from it, into a 401(k). Some firms match your contributions, up to a limit. As Stacy Rapacon of Kiplinger's Personal Finance notes, if you have a job that pays just $31,200 a year and you put 7 percent of your monthly salary---$182---into your 401(k), you'll have $1.1 million dollars in 42 years even if you never get a raise. That assumes your company matches at a clip of 3 percent and your portfolio returns 8 percent a year.
Fund an IRA
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Whether or not you participate in a workplace retirement plan, look into funding an IRA. While everybody's situation is different, most workers qualify to contribute to a Roth IRA. If you contribute to a workplace plan, you may not be able to reap the full benefit of a traditional IRA. All things being equal, Individual Retirement Accounts help solidify your retirement plans. The IRS allows lets you deduct traditional IRA contributions from your taxable income, giving you a tax benefit in the here and now. With a Roth, you contribute after-tax money, but generally can withdraw your entire nest egg tax-free once you hit age 59 1/2.
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Live Debt-Free
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The last thing you want to do is walk into retirement with debt. Certainly, you can commit to running up your credit cards and taking your time paying off a mortgage today with the promise of getting around to it later. If you slip up, you might find yourself raiding savings to pay for things prior to retirement or unable to save at all. If you're debt-free, or close to it, you don't have this concern and you can focus on building your golden parachute.
Invest Aggressively
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When you invest, you consider your time horizon when determining the mix of investments that suits you best. If you are in your 20s or 30s, you, presumably, have 30 to 40 years or more before you hang up the suit and tie. In this case, you can weather stock market storms in return for the generally strong long-term returns provided by equities. You can play around with online asset calculators to figure out the proper mix of investments for your specific situation (see Resources).
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