Quite a while back - before my beloved Bucks became World Champions - I had promised my wonderful readers a series on retirement. That day has finally come! Rather than talk different components of retirement planning, I'm going to take a different approach. I will talk retirement by decade of life, starting with your third decade on the planet.
She was one of three images for "roaring". The other two were tigers... and tigers don't retire.
Too Soon?
You may be saying to yourself, "Thinking about your retirement in your 20's? Isn't that a little too soon?". Not only are you wrong, I will spend the rest of this week's blog illustrating your wrongevity. That's a word I just invented to express how wrong someone can be in a time sense.
The first years of your adulthood are the best time to prepare for retirement. The time value of money is the most powerful tool in your retirement toolbox - and building equity (or paying off debt) early on will set the stage for a comfortable end to your working life. Remember, putting money in the stock market (with average returns and reinvestment), will double in about 7 years. If you can invest an extra decade, you're well ahead of the game.
Real Deal
But let's be realistic - the average 23-year-old is not thinking about retirement. Even a personal finance geek like yours truly was not as future-oriented at that time. Do I need to remind you about the Jeep Patriot? But let's not get hung up on crushing retirement goals during arguably the most fun ten years of your existence. If you're not maxing out your 401(k) or paying off all your student loans your first year out of college, you're not destined to work until your 75. Instead, make progress towards building savings and/or paying off debt. If you can't get up to that $19,500/year limit on your 401(k), can you do $5,000? Instead of sticking with a 10-year payback on student loans (or counting them disappearing!), perhaps your could refinance to a 5-year loan to reduce total interest payments. Incremental progress is key. Financial well-being is not all or nothing; it's about doing what you can, as soon as you can, to work towards your goals.
Cash Flow Positive
This may sound like I'm setting the bar really low here. In my opinion, if you can make sure you're cash flow positive throughout your 20's, you're doing fine. No, I'm not going soft on Gen Z. What I'm saying is if - from age 20 through age 29, if you can come out with more in assets than liabilities, you are headed in the right direction.
Does this mean that if you're making $80,000 salary out of college, and you have $100 to your name on your 30th birthday, you've been successful? Nope! Those of us that have solid incomes should be headed into our 30's with a good amount of savings towards retirement. You may even be married, have kids, and/or a house. What if you went to work right after high school and don't have a student loan burden? All of these factors will play a role in how you spend (and save) your money. But think of that 27-year-old who just got her doctorate and is starting her career. If she can end her 20's paying off all the student loans - and have money left over - that might be a win.
Back To The Future
So let's step back a bit and ask a genuine question: why should you sacrifice money to savings and/or retirement during your best decade instead of enjoying it while you're young? It's true that clubbing in your 40's is lame, and you may not be healthy enough to travel internationally when you're retired. The temptation to spend now is strong, but think it through. While you're young enough to have fun, you're well enough to work and make money. Life can be awful. There may be a point - perhaps before you're ready to retire - where you can no longer work. What if you're a surgeon who has crippling arthritis in your 50's? Or suffer from chronic back pain and can't work construction? Or have a life-threatening disease that requires time away from work to recover? Fun way to bring it home, I know. But in all seriousness, life is going to get more complicated the older you get. If you can save money early in your working life to cushion you against these risks, you're more likely to come out of them in better shape. And if you're lucky enough to avoid major hurdles, perhaps you can buy a nicer Cadillac when you retire!
Your young adulthood can be the best time of your life, but it doesn't mean you can ignore the future. Saving during this pivotal decade will help insulate you from future challenges and set you up well for retirement through the time value of money. Keep plugging away and you'll reap the rewards in the future. But don't be robotic about it! As long as you are making progress towards financial success, enjoy your youth. In the next blog, let's tackle that magical decade from 30 to 39!
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