By Tim Grant
WWR Article Summary (tl;dr) Saving money takes discipline and for those having trouble with that, financial experts suggest making it automatic through payroll deductions, especially when employers offer a 401(k) plan.
The last thing many young people want to do with their paychecks is sacrifice part of them for a retirement account, even though tiny contributions made at an early age are all but guaranteed to multiply many times as the years go by.
“If they’re saving for anything, it might be a trip or some short-term objective. But typically socking money away for a retirement that’s decades away isn’t high on the list of goals,” said Lynnette Khalfani Cox, founder of the Mountainside, N.J.-based website AskTheMoneyCoach.com.
For people in their 20s or 30s, the priorities may be paying rent, making car payments and managing debt related to student loans. But it’s never too early to start saving money.
Pittsburgh financial adviser Seth Dresbold illustrates the power of compound interest by assuming a person were to invest $5,000 a year between the ages of 25 to 35 at 8 percent interest. That individual could expect to have $615,580 at age 60, having invested only $55,000.
Rising interest rates will have affect bonds for the foreseeable future. Bond exchange-traded funds carry more risk than individual bonds. They trade like stocks, and investors can lose principal.
“If that same individual instead started investing $5,000 a year every year beginning at the age of 35, and continuing until the age of 60, he or she would expect to have $431,754 at age 60, despite having invested a total of $130,000,” said Dresbold, a senior adviser and partner at Signature Financial Planning.
“Essentially, by starting later,” he said, “you would have $183,826 less despite investing $75,000 more.”