Apparently people  aged 18 to 34 who have retirement savings has dropped to 39 per cent – the lowest level in almost a decade – and fully 45 per cent have not started saving for retirement yet, according to a recent survey conducted in the past few months. Regardless of the age it seems that saving for retirement is either not a priority or consumers are struggling to meet their living expenses. Young people should save for retirement.

The graph above demonstrates how powerful early savings are and how much you can save if you begin early. We will talk about this subject even more in the next post,  Compound it – Why It Does Not Pay to Wait.

In fact retirement savings ranked seventh as a financial priority among younger people (26 per cent). The survey found that this age group is more focused on other financial goals such as reducing or eliminating debt (56 per cent), saving for a rainy day (45 per cent) and homeownership (44 per cent).

For most young people retirement is so far away and they feel that they are invincible, that saving for retirement really takes a low priority. The fact is that it takes a lot of money to be financially independent at retirement. You also do not know what life will throw at you over the years. Early retirement, forced retirement due to layoffs and all sorts of things could leave you without the funds in your retirement years. Young People Should Save for Retirement

What is the Solution to Saving for Retirement?

There is lots of advertising by all of the banks and financial institutions. However the bottom line is that individuals have to take responsibility for their own lives retirement. The best way is to form a habit of saving for retirement. Begin early when you have lots of time and the income can help you contribute to your retirement.

For example, if you took 10% of of your income and placed it into a tax free account to save for retirement.

Benefits

There are multiple benefits to this approach, which we will list as follows:

• 10% is a relatively small amount and many people can afford to place 10% of their income in an account which they will not touch until retirement
• Use a tax free account that allows you to deduct the contribution against your income, such as a 401k in the US or an RRSP in Canada. If you are in a 25% tax bracket, the actual cost is only going to be 7.5% approximately after taxes.
• Form the habit of savings. Once you get used to saving and doing without this money, not only will you get used to not having it , many people do not even miss it.
• Income is tax free within the tax free account and over 30 or 40 years this income can add quite substantially to your total savings if you begin early enough.
• Health emergencies can occur and while consumers are urged not to touch their retirement savings for this purpose, in desperate situations the money is there to help with this expense.
• Early retirement and layoff’s will also affect how much you can save for retirement. Starting early increases the odds of saving adequately for retirement.

There are lots of benefits when you think about saving for retirement. One significant benefit is just plain peace of mind. Knowing that you will not be broke when you retire or have to work into your seventies reduces a lot of stress. It provides many people with  comfort and reduced stress that also contributes to a healthy life.

Young People Should Save for Retirement Early

Starting early to save for retirement is painless. The savings will add up over the years and really amaze you. Place your saving in something that will grow and that is relatively conservative. This is your retirement. Although you have to time to recover from big losses, it is always better to invest in blue chip companies. Be diverse in your investments and monitor your investment at all times. Ensure that your retirement savings will be there when they are needed.

You Might Even Want to Retire Early

Another advantage of starting to save early for retirement is that you might even be able to retire earlier. In fact more and more people with sufficient savings and pensions are retiring early.  They can travel, volunteer, help with the grand kids and do whatever they feel is important to them.

Not only do you have peace of mind. You also have a lot more flexibility to make decisions about your life style.

Retire at 49 to pursue another career. Work on a new business. Or just going to the golf course can be a great motivator to save early for retirement. Set your goals now. Develop a plan regarding how you are going to achieve those goals for retirement. Click here for more ideas about saving for retirement.

Save

New Years’ is just around the corner and most people begin thinking about their new year’s resolutions. Kick Start Your Finances or we are going to try to lose some weight, quit smoking, or perhaps drink less or go on a vacation. These are all great things to consider, however, maybe we can add something more to this list. Maybe we can add getting our finances in order, perhaps saving for emergencies, that new car we have been thinking about, the kid’s college fund, and oh yes retirement which is many years away for some.

Kick Start Your Finances – Realistic Goals

Like all New Year’s resolutions, if they are not realistic, they probably will not happen. It is important to set realistic goals to help make sure that we can achieve them. Setting those goals should be based on our current financial situation and not some fictional wish list. The first step to setting these goals for the coming year should be based on a financial plan that summarizes your current assets, debts, cash flow, and income streams. Once you have that information, you can begin deciding what your priorities are and what goals you want to set for the coming year.

Pay Yourself First – Savings vs. Debt

Many banks and financial institutions talk about paying yourself first. What they really mean by that is to put money into a savings plan with them. Whether it is an RRSP in Canada or a 401k in the US, the banks want you to invest with them. You can also pay yourself first by paying off your debt so that you are paying less interest expense and ultimately when the debt is fully paid off, you have more cash to pay other things and save for the future.

Think Long Term – Retirement, College Funds, Mortgage

While you want to pay your debt off as quickly as possible, it is also smart to start thinking about the long term regardless of what age you may be. If you are young, setting a small amount aside for retirement every week can add up in a hurry and make you financially independent at retirement age. The same applies if you have young children. We want them to go to college and it takes a lot of money these days to put a child through college. Saving when they are young makes this also a lot easier as well.

Spending Less to Achieve Your Goals

You may find that initially at least you will have to spend less to achieve your goals in terms of saving money for college funds, debts, and retirement. But taking this step has huge benefits as you get older and close to retirement. It also means that you live within your income level and avoids debt increasing. This is important at any age even if you are retired today. Once you pay down your debt you will have more money at your disposal to pay for other things including your financial goals and other things that are part of your financial plan such as upgrading the house.

Peace of Mind

Are you one of those people who lie awake at night thinking about their finances? Once you have a plan there is nothing to think about. Focusing on implementing the plan provides a great deal of peace of mind and can eliminate those sleepless nights. A friend of mine who was retiring from a well-paid government job with a large pension did not know if he was going to have enough money in retirement. He worried a lot about this because he did not have a financial plan. He did not have a budget. They lived from paycheck to paycheck and often did not know how he was going to meet all of his obligations. The answer is pretty simple:

• Develop a budget
• Develop a financial plan
• Pay down your debt as quickly as possible
• Set aside money for retirement
• Set aside money for emergencies
• Save for special projects such as new cars and home renovations
• Live within your means

New years is coming quickly. Have you made your new year’s resolutions? Even if you read this after New Year’s has long passed, now is the time to put this plan into action and obtain that peace of mind that everyone wants to have.