Investing for retirement is one of the most important things you can do to ensure your financial stability in your later years. Everyone understands that saving for retirement is important, but very few people actually follow through with a long term investment plan. Perhaps it is because many young people feel that there’s no point investing for the future when they feel that they need that money right now or simply do not understand the many benefits of investing that money.
But the years are going to pass, and it’s not going to get any easier to prepare for retirement later on. Here are four reasons why everyone should start saving for retirement as soon as possible and make your future that much easier.
Compounding interest requires time
First of all, investing for retirement isn’t just about saving money for later. It’s also about putting money away and growing it as the years go by, earning interest every year and reinvesting that interest right back into the stocks, bonds, or other investment vehicles. Investing is the single best way to grow wealth.
Reinvesting that interest causes one’s retirement fund to grow at a faster rate, but this compounding effect takes many years to grow. And it is only in the later years that massive growth takes place. Someone who starts investing at age 25 could end up with twice as much money at retirement than someone who waits until age 35 to begin. The clock is ticking, so it is absolutely necessary to begin investing right away.
Investing early teaches you self-discipline
Developing the habit of consistently investing for retirement takes a lot of self-discipline. By beginning to invest at a younger age, people are better able to develop the discipline needed to keep the contributions going year after year. You can also set up automatic deposits, which allows you to automatically save.
You want those tax benefits
Another reason to invest early is to protect that money from heavy taxes. Tax laws allow for money invested in retirement funds to defer tax payments until retirement, and this adds up to a substantial savings in tax payments throughout a lifetime. For other types of retirement funds, you can avoid paying taxes later by investing money that’s already been taxed. Take the time to research what options are best for you.
You might not be able to afford investing as much later
Another major problem with waiting until a later date to invest for retirement is that many people simply won’t be able to afford to invest later on in life. Some people suffer medical issues or financial problems that cause them to lose their assets or to lose their earning power. So it is better to begin now than to assume that one will be in a better position to invest in later years.
It takes a lot of self-discipline to set money aside for retirement, especially when one is still young and it feels like retirement is so far away. But now is the best time to begin in order to take advantage of the full effects of compounding interest, to save money on taxes, to build good financial habits, and to take advantage of earning power at a younger age.