NEW YORK (MainStreet) — When it comes to saving for retirement, sooner is better than later. The longer you wait to save for your retirement, the higher percentage of your income you're going to have to put toward retirement when you're older. On the other hand, if you start saving from a young age, you can put aside comparatively less money out of your weekly paycheck and let interest and yield do all the work for you. Saving money for retirement straight out of college -- or even before -- might not be the sexiest topic for a young person. But there are strong and compelling reasons to get started early.
This is the big one and it's probably why half of all Americans wish they had started saving for retirement earlier. Ellie Kay, a family financial expert based in Southern California, notes that "you could just invest in a fund for five years, never touch it again and have a couple hundred thousand dollars in 20 years." That's because of the way that compound interest works. It's the main reason why you should invest for you retirement as young as is possible.
Kevin Gallegos, vice president of Phoenix operations with the Freedom Financial Network, agrees. "Every time your institutions calculate how much they're going to pay you in interest, they include the interest earned from the last compounding period." This works against you when it comes to consumer debt. However, when you're saving for retirement, compound interest is a powerful and unstoppable force rolling a snowball in your direction.
Flexibility and Freedom
"There's a level of freedom that occurs when you start saving at a young age," says Gallegos. "How would it feel to be 55 and have $2 million in the bank?" He notes that, not only will you have more freedom when you're older, but that you'll also have more options when it comes to how you spend your retirement. "It's about being set up for the lifestyle that you want," he says. So if you want to take a cruise around the world in retirement, start saving for it now. You might be able to say "bon voyage" to your working life sooner than you think.