Why you should start saving for retirement now even if you’re only 23

Jobs from Indeed

Image: Jessica Peterson/Getty Images/Tetra images RF

Congrats! You’re 23 years old and you have your first real job.

On the downside, you now work long hours, wear uncomfortable shoes all day and can’t take naps. Even worse, your paychecks get divided pretty evenly between rent, food and student loan payments.

Understandably, you haven’t bothered to start a retirement fund yet you’re only 23! You have 39 years before you need to even start worrying about retirement, right?

Wrong.

We spoke with Dan Egan, director of behavioral finance and investments at Betterment, and Qapital founder and CEO George Friedman about why every young adult needs to be planning their financial future and why it’s so difficult.

“The 20s are a crucial time to start building wealth and saving for retirement,” Egan said. “The younger you start investing, the more you can reap the benefits of compounding and long-term market gains. Additionally, at this age, you can afford to invest more aggressively and take on a little more risk in order to earn better returns.”

When asked how much a person should set aside, Egan said that it varies by situation. However, he would give everyone the same advice.

“The simple answer: save more. If you arent able to contribute substantial amounts of your salary yet, its most important to just get in the game,” he said. “Once youre in a stable position in your life and career, committing at least 20 percent of your annual income (including retirement savings) to your investment portfolio is the way to go.”

It is hugely important for young people to be planning for their futures, but very few of them do. A survey from Scottrade found that 64 percent of millennials haven’t even begun to think about retirement.

This graph from J.P. Morgan illustrates the earning potential your investments have.

A graph showing the earning potential of retirement investments

Image: J.p. Morgan asset management

It shows that a 10-year delay in putting away money for retirement can be impossible to make up. Chloe, who starts investing at age 25, will make $950,588 more than Lyla, who had the exact same investment plan, but started at age 35. Chloe only invested $100,000 more than Lyla.

Putting away money early in your career is obviously a sacrifice. Every dollar being put in a retirement account is a dollar not being used to buy the next round or to see that new band coming to town.

Those are sacrifices that are important now, so that you don’t have to make tougher sacrifices when you get older.

“It might seem like a sacrifice to save 20 percent of your income right now,” he acknowledged. “But think about it this way: By saving as much as you can while there are fewer demands on your income, you put yourself ahead.”

It’s easy to tell young people to save, but it’s not always possible.

According to a survey conducted by the National Association of Colleges and Employers, members of the class of 2016 are expected to have an average salary of $50,556. While that does sound like a lot of money, it goes fast once you’re in the real world.

One 2014 grad, who asked to remain anonymous, told Mashable, “I feel like my life has no chance of truly being stress-free until my student loans are paid off.”

Qapital CEO George Friedman advised recent grads who don’t know where to start to put a system in place, regardless of how much they were able to set aside.

“Start by focusing on getting into the right habit, you can up the amounts later on. Really, just do it, even if you start with only $100 a month,” he said. “At Qapital, we see many first-time savers who automate it for small amounts and before they know it, have significant amounts stacked up for anything from a down payment for a house to a summer festival ticket, or a first large chunk toward a retirement fund.”

We asked Friedman how much of a difference a few years will really make.

“A huge difference,” he said. “That is because the money you put aside at the start will have a really long time to grow, thanks to compound interest. Itll also hurt less if you go easy at the start and start saving small, instead of trying to play catch-up with large amounts later on.”

Friedman also said that young workers shouldn’t let loans or debt stop them from planning ahead.

“Waiting to save until youre debt-free could be a long way away. Just because you have loans to pay off, doesn’t mean you can’t make smart financial choices for your future. The earlier you start saving for retirement, the more time your money will have to grow. And, with the right plan, youll pay off your debts along the way.”

So, there you have it. Start saving now.

Read more: http://mashable.com/2016/07/26/retirement-millennials/