Teens nowadays are facing difficult times. Unemployment remains high at 7.6%, the healthcare industry awaits the implementation of the Affordable Care Act, and personal debt is skyrocketing - and then there's the issue of retirement. The average American is currently in a retirement crisis. Over half have less than $25,000 saved, and close to a third doubt they're going to be able to retire comfortably. It's going to be a while before you retire, but one day it's going to happen and you want to be prepared when it does. If you need any additional motivation to start saving now, read on.
1. Your Future Is Less Stable Than You Think. Did you know that Social Security is expected to begin running out of money in 2033, and Medicare in 2024? Government safety nets designed to provide financial security in your later years are wonderful, but a lot can happen between now and when you retire. If you'd rather rely on your own money to fund your retirement, start saving up now.
2. The Power of Compound Interest Is a Game Changer. Compound interest allows you to earn interest on the money you save, and on the interest that money earns. Consider this example excerpted from Money Magazine: If you start saving $500 per year at age 25, you can have a little over $1 million by the time you hit 65. Wait until you're 35 to start saving and that number drops to just over $500,000. These numbers are based on an average annual return of 7%, invested in a tax-advantaged account.
3. No One Is Going to Do It for You. Your parents may be undergoing their own retirement crisis which means they might be more focused on their own goals instead of yours right now. At some point you're going to be in complete financial control of your life, so take the bull by the horns today. Start investing for your retirement now and you can avoid the headaches your parents may be experiencing.
4. You May Live Longer. The average life expectancy in the U.S. was roughly 60 years in 1930. It's now approaching 80. If you retire at age 65, it's no longer a given that you won't live another 30 years. Start saving now for retirement so you can fully enjoy the entirety of your sunset years.
5. Pensions Are a Thing of the Past. Company pensions have been drying up for years now, and with the current status of cities faced with funding them, your chances of landing a job with a pension plan are slim. That makes it even more important for you as a teen to begin addressing the topic of retirement savings right now. To start saving for retirement, you have to start bringing in income. Get a part-time job during the school year and pick up extra hours over summer and holiday breaks. Then, open a Roth IRA. Young people of any age can do so as long as they have earned income. You're allowed to contribute up to $5,500 (or the amount of your earned income, whichever is less) for this year and your withdrawals are tax-free after the age of 59.5. With the help of your parents, determine the best funds to invest in, and watch your nest egg grow. Planning financially for retirement is serious business, and in order to address it effectively you should start saving now. What are you doing as a teen to begin saving for retirement?
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-Rob Logan advises young people on the importance of saving and using various tools to accumulate wealth for retirement.