What is the advantage of investing early for retirement, you ask? Of course, the obvious answer is that you’ll meet your retirement savings goal with ease. But that is just the tip of the iceberg. By starting early, you can invest in far smaller increments to achieve the same goal. And, you’ll be able to choose different types of investments if you have time on your side – diversifying your portfolio to mitigate risk and supercharge growth.
If you’ve begun investing for retirement in your 30s, you’re off to a great start. But if you can start investing early for retirement in your 20s? Even better. The reality is that the cost to retire these days isn’t what it used to be.
As you’ll soon discover, starting early is the best thing you can do when it comes to retirement planning. That’s why we’re going to explain all the advantages of investing early for retirement savings today. We’ll explain when you should get started, and how to do so.
By the end of this article, you’ll be ready to start planning for life after work – and your future self will thank you!
What Is Considered “Early” For Building Your Retirement Account?
Before we get into all the advantages of investing early for retirement, we have to address what “early” means in the first place. Some people claim to have started investing early – but they didn’t begin until their 30s. It’s true – better late than never when it comes to retirement planning. However, “early” to us means in the 20s. And the earlier, the better.
In fact, you should begin building your retirement account as soon as you have your first full-time job or source of income. One of the best pieces of advice we can offer is to pay yourself first with any income you receive. This is especially true for those who are earning income in nontraditional roles – such as freelancers and entrepreneurs. You can lower your taxable income by investing in a retirement account.
If your occupation helps you with retirement planning, great! They will guide you through this when the time comes. And, they may even match contributions to your retirement account. But if you’re on your own as a freelancer or entrepreneur, there is no one telling you what to do in terms of retirement. You’ll likely want to rely on the help of a certified financial planner or advisor.
Don’t worry – we’ll walk you through it later on. For now, let’s get into the meat and potatoes of today’s discussion: what is the advantage of investing early for retirement planning?
What Is The Advantage Of Investing Early For Retirement?
So, what is the advantage of investing early for retirement? It can be summarized as less financial stress throughout your life while enjoying your ideal retirement plan down the road. You’ll spend less of your money by starting early – thanks to compound interest. You will have to invest far less by starting at 25 than someone who starts at 30 or 35. And, you can be more creative and strategic in selecting your investment strategy. Let’s discuss in-depth the advantages you’ll gain by beginning now.
Reach Your Retirement Goal Faster With Compound Interest
The biggest advantage of starting early in building your retirement account is that time is on your side. When learning about investments – specifically as they pertain to retirement – you may hear phrases such as “make your money work for you”. This is where the compound interest comes in.
In building your retirement account, the money you make on your investment is then invested back into the account to continue growing. To truly understand the power of compound interest, we want to provide an example.
Say you get your first real job and you’re earning a great salary. You recognize the importance of starting your retirement account early, so at 25 you contribute just $6,000 that first year into a retirement account. It will grow to over $240,000 off that initial investment (assuming retirement at 62 and 10.5% return based on market average over 30-years). To arrive at the same total from a one-time initial investment at 35 would require over 2.7x the principle – $16,250.
Do you want to help set your teens up for success? Here is another example of why starting early is so important – a one-time retirement investment of $6,000 for a 16-year-old’s first job would end up being nearly $600,000 at age 62. What a head start!.
Invest A Little Money Now – Or A Lot Later On!
Let’s say you have an idea of what you want retirement to look like for you. You want to be able to live a comfortable life and explore your favorite hobbies, travel to new places, etc. As you’ll soon learn, deciding what you want out of retirement is the first step to building a retirement plan.
Once you’ve considered your vision for retirement, you can reverse engineer the steps to make it happen. With some careful planning, you’ll know exactly how much you need to set aside to enjoy that life. Our retirement calculator can help with that. And, there are two approaches you can take to make it happen:
- Investing a little money every month early on in your life
- Investing a lot of money every month later on in your life
The longer you wait to get started planning for your future the more work it is going to take to make it happen. You won’t enjoy the same benefits of compounding interest. And you’ll find yourself more stressed out as you have to shell out larger monthly deposits to your account. Trust us when we say that avoiding this stress alone is a great reason to start investing early.
Enjoy More Flexibility In Your Investment Strategy
The longer you wait to begin planning for your future, the more pigeonholed you’ll be. You won’t have as much flexibility in what you can invest in terms of dollars and cents. But, you’ll also be limited in terms of the investments you can make.
Early on in life, you can afford to take risks with your investment strategy. Higher-risk investments will pay higher returns if they pan out. If you invest a good chunk of change towards these high-risk opportunities before your 30s, you still have 10-20 years to make up for it if they don’t pan out. But, later on in life, you won’t have this luxury.
How To Get Started Investing Early For Retirement
Now that we’ve covered the three main advantages of investing early for retirement, we want to provide you with your next steps to getting started. As we mentioned earlier, step one is deciding what retirement looks like for you. This is unique to everyone – and we’ll help you start building your vision. But what do you do from there? We’ll break it all down so you can leave this article with the confidence to get started.
What Do You Want Retirement To Look Like?
First things first – determine what you want retirement to look like. This will be the #1 factor affecting your investment strategy and how much you need to save. For example, say you plan to retire later in life and live a more modest lifestyle. You won’t need to save nearly as much as someone who wants to retire earlier and travel the globe while exploring new hobbies.
Keep in mind that your goals may change with time. Maybe you start planning for your future at the age of 25 – great choice. But, don’t be shocked if your values and preferences change with time. By 40, retirement will be looming – and you may feel that you’re not ready to stop working yet. This will mean that you can invest more towards your retirement plan and you’ll have more money to work with. The opposite is true as well. Maybe the burden of working has become too much – and you want to retire earlier than you planned.
Similarly, you may find that you planned for a modest lifestyle – and after 10 years, you decide you want to explore new parts of the world after you hang the work boots up. Retirement planning is an ongoing process – but by starting early, you’ll enjoy more flexibility.
What Can You Do Now To Make That Vision A Reality In The Future?
Once you know the lifestyle you want to live, when you want to retire, and how much you make now – you can start putting the pieces of the puzzle together. You’ll be able to gain an understanding of the total cost of your retirement. From there, you can begin reverse engineering to estimate how much you need to save every month.
Keep in mind that this isn’t going to be perfect. You’ll undoubtedly experience the woes of retirement planning along the way. This includes market downturns where you don’t earn the same interest rates you had anticipated. There may also be instances where your investments don’t pan out – you can’t eliminate market risk. But as we’ve continued to stress throughout this article, much of this uncertainty can be offset by starting early.
With all that said, meeting with a certified financial planner is a great way to get started with investing for retirement. They’ll be able to help you budget your monthly investment. However, they will also cost you a pretty penny for their services. These days, more and more people are handling their retirement planning on their own. This is totally feasible with the right tools and resources.
Set Yourself Up For Success With Investing Resources & Tools
If you want to learn how to invest for your retirement on your own, you need to take the time to learn the ins and outs of investing. We recommend a quality course for this. Otherwise, you can spend the time scouring the internet for free resources. Trust us – the time you’ll save by just investing in a course that compiles all this information in an easily digestible format is worth the price alone. And, you’ll be able to invest in confidence. Take a look at the Ultimate Retirement Solution if you’re ready to get started. And keep in mind – even the best course won’t save you from the trials and tribulations of actually investing yourself. You will still make mistakes along the way – but at a lower rate and with lower losses.
Along with the information you will also need tools to help you build your portfolio. To bring your retirement vision to life you need to invest in assets that appreciate over time. And there is no better way to pick winning investments – and manage them over time – than with a stock forecasting software like VectorVest.
This will help you navigate market changes as you’ll have insights into overall market sentiment. And, you’ll be able to find winning opportunities on autopilot by pulling up searches for “hot stocks” or “best retirement stocks”. Once you experience investing with this type of software, you’ll never consider going without one again.
Final Thoughts On The Advantages Of Investing Early
As you can see, there are a plethora of advantages you’ll enjoy by starting your retirement plan early on in life. The earlier you can start allocating a portion of your monthly income towards your retirement plan, the better.
And now that you know how to get started, there is just one thing left to do – invest in a quality investment course and start learning the ins and outs of retirement savings. Then, get to work with the help of a stock forecasting tool as you build your portfolio. Start today and enjoy the retirement you’ve always dreamed of!