When Should You Start Saving for Retirement?
As a college student working part-time, I have saved up a few thousand and I am curious as to what to do with that money. My high school teacher reinforced the idea that I should start as early as possible but does it make sense to be saving for retirement before I'm 20 and have a full-time job? When did you guys start saving for retirement and/or investing in a 401k?
Yesterday
Came here to say this
Same
Now.
Start with a roth IRA. After tax money that will then grow tax free. No forced takeout I believe. Max 6k a year.
Max your 401k at work ~20k or so at your job if you have one.
If you max those out and have luck with the market both accounts should be worth ~7 figs if you retire at 67.
Take the rest. Stick it in a brokerage account. Buy stock.
Save 30-100k. Buy a house, rent it out.
If you have money after that go invest in some speculative businesses if that's your thing. Oil (you can get into small time plays with 10k+ if you network with the right people); Dry Cleaner, etc. High risk high reward.
But the first two things will make it so you can actually retire.
Contributions to IRAs are not tax deductible after a certain income limit and ROTH IRAs are not allowed at all after a certain income limit and assuming your employer offers a 401-K.
If you have kids, fund 529s after maxing out your 401-K at work.
Build up an emergency fund. Buy a house (your personal residence).
If you have done all that already, buy some low cost index funds tilted towards equities. Fidelity or T Rowe Price. Invest and forget.
You can still contribute to a Roth IRA after the income limit by way of a backdoor Roth. You contribute dollars into a traditional IRA, and then roll that contribution into a Roth IRA.
do you know anyone / have you read anywhere about the Dry Cleaner as a speculative business? this is an industry I've always wondered about. What are expected returns? start up costs? thanks!
One and the same. Going to vary a lot.
I actively trade, but I'm also really good. First year or two I was at about market, but now I far exceed it.
However for most people with little market knowledge, buy SPY and forget.
I don't think it makes much sense to put a few k in your 401k. In the grand scheme of things, it's next to nothing.
You're gonna earn a lot more cash once you start your career and saving a few grand in your 20s is not that big of a deal. Personally, the enjoyment I get of spending the money today is worth far more to me than a more comfortable retirement in 40 years.
Spend the money on champagne and blow during spring break!
This. Spend your time and money enjoying your youth. You will never have the opportunity again.
I don't think you need to live like a pauper, but investing as much money as you reasonably can while you're young is a good idea. Compound interest is really powerful and the levers over which you have the most control are time and principal (the other lever being return - getting a return higher than 10% is tough). As an example, if you invest X when you're 22 in the S&P 500 ETF and don't touch it until 65, you'll have about 18X in real terms (10% return from S&P 500 with 3% inflation). That's from doing nothing but sitting on your butt for 43 years. If you wait just 5 years to invest X, you'll only have 13X at 65. That's a significant difference.
I think a mindset shift can help make saving easier. Instead of thinking of it as "in 40 years I'll need some money because I'll be old and not want to work", you should think of it as "I want a pile of wealth as early as possible so that I can do whatever I want." That'll help you frame your spending in terms of "Am I ACTUALLY going to derive a lot of enjoyment/value out of this purchase or am I spending money simply because I can?"
They teach you compounding at college? Putting in money AS EARLY AS possible will grow big time over 25-30 years. Missing out on the years of compounding is a huge mistake and will have you working way longer than you want to be. Enjoy your blow and spring break.
Save some for a rainy day or to enjoy things that cost money but I definitely recommend investing. You are young. Think compounding interest. Time is on your side. Pick a number to invest each month or year. Watch it grow. Use a compounding interest + recurring investments calculator to see what your investments will grow to. Of course we don't know exact interest rates long term but if you annually put $2k in an account with a 3% APY, in 35 years you'd have something like $130k. It would be a 58K yield on a $72k principal investment. These are rough numbers but that's almost double your money by just letting it sit there and investing annually.
It's good to save a little, but as others have said, don't trade your social life for a few $K savings if you have to choose one. Additionally, remember that there are penalties for withdrawals from retirement accounts, so don't "oversave" in true tax-deferred/exempt accounts because you're young and will likely have big expenses in the future (e.g. in my case, home down payment, wedding ring...)
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