I'm scrolling on my twitter feed as we 20-somethings do, and I stumble across a tweet from the Wall Street Journal. I am actually not subscribed to “The Journal,” but the headlines always seem like they provide good shit to know within certain circles, if ya feel me. But this morning, they come out firing on all cylnders, bein' all like “yo, Robb Stark, 20-somethings aren't saving for retirement. YOU aren't saving for retirement. You suck.”
For most 20-somethings, the idea of retirement isn't front and center. It isn't even a glimmer.
But it ought to be. In fact, a first job is precisely when younger people should start preparing for the time when they will retreat from the workforce.
Starts off innocent enough, spitting mad truth. It's pretty tough to argue against this, especially considering the lesser fiscal responsibilites workforce newbies often have–we generally rent apartments or live at home, many of us are on our parents health insurance, cell-phone plans, and our moms may insist to continue to buy us clothes. Probably most importantly though, the overwhelming majority of us do not have a family to feed.
Yes, retirement may be 40 years away, and your paycheck is small. Your rent may be high, and you may have student loans to repay. But saving even small amounts early on can make a big difference. A 25-year-old who starts saving just $600 a year could have $72,000 at age 65, nearly twice as much as someone who saves $1,200 a year beginning at 45, according to calculations by LearnVest, an online financial-planning service.
Here's where it gets tricky. Sure we don't have to buy bibs and diapers and shit, but WOW is the rent too damn high. So damn high, the rule of “rent should be a weeks worth of your salary” is almost laughable, particularly in places that young people go to so they can try and “make it.” Definitely not looking at you, NYC.
Also, you may have student loans to repay. But don't worry, because higher education does a really good job of making their institutions affordable.
That said, compound interest is important, and overall a term you should say in instances where it's important you look like you have your shit together. Saving just as little as $10 a week (read, that extra beer + tip at the bar you obviously don't need) will give you more than five-hundo for the year. In the grand scheme of things this is nothing, but it's probably the habit that matters the most.
If your employer offers a 401(k) plan, embrace it, says Russell Bailyn, a wealth manager with Premier Financial Advisors in New York.
A 401(k) plan typically offers participants a range of mutual funds in which they can invest. Contributions typically are made with pretax money and are tax-deferred until the money is withdrawn. Some employers automatically enroll new workers (although they can opt out later), and some offer to match part or all of your contribution, depending on how much you put in. For instance, your employer might match each dollar you contribute, up to 3% of your salary, or kick in 50 cents for each dollar, up to 6% of your salary.
Do that if you can. The tradeoff here sometimes implies working in the 9th circle of corporate hell, but you'll be compensated nicely for it. Plus, given that you're 23, how much can you really do? Businessweek articles are your oyster.
Not everyone has access to a 401(k) plan. Some young people are employed through fellowship programs, some work part time and some work for companies—typically small, private ones—that don't offer retirement plans. Those workers should consider putting money into an individual retirement plan, or IRA.
This is a lot of work, and could be a bit risky. Then again, this is the Wall Street Journal, so investments! and mutual funds! and financial buzzwords galore. But if you give a shit, do follow up.
Remember: The important thing is to start saving early, even if it's just a small amount. Albert Einstein has been quoted as calling compound interest “the most powerful force in the universe.”
If you're out there dying for YouTube fame, make a sketch of Albert Einstein saying ridiculous, completely unaccruate life-advice statements, and people following through on them. Also, start saving all that money you don't have.
[H/T: Wall Street Journal]