You might think that you have plenty of time in the future to put savings aside for your retirement and that you don't have to worry about it for a few years. But the sooner you start, the better it is, as:
You may have fewer commitments and demands on your money when you're young (like a mortgage or a family).
You have time on your side, so your savings will grow.
You have longer to benefit from employer retirement fund contributions, where applicable, that will boost your own savings further.
The longer your savings grow, the more you will benefit from compound interest, which is the interest that's earned on previously earned interest. If you want to know more about compound interest, and how it works, you may find this article helpful:
Compound interest quickly mounts up and may significantly increase your savings over time. Here's a really simple illustration to show how it works:
When Ashley is 25, she decides to put £1,000 of her savings into a retirement fund and then add a further £100 every month until she is 65. At 2% interest, by the time she reaches 65, she would have saved up £49,000 and earned an additional £26,473.27 in interest, making a total of £75,473.27.
If Ashley had waited until she was 35 before saving towards her retirement, then at 65 she would have saved up £37,000 and earned an additional £14,018.85 in interest making a total of £51,018.85.
It shows that by starting sooner, Ashley manages to build savings worth 50% more for her retirement. That's the value of compound interest.
If you are still paying a student loan, it might seem fair to put off regular savings but if you can treat your retirement/long-term saving as another expense or bill that you must pay every month, then that's going to serve you well in the future.
It's also great if you could get a regular sum deducted from your pay cheque automatically, which is deposited into your savings plan or fund.
Let's go back to Ashley's savings for a minute. We've seen how by saving £100 a month for forty years, Ashley was able to build savings worth £75,473, of which nearly £26,500 was interest.
If she had waited and only saved for 10 years, Ashley would have had to deposit £2,050 each month to earn roughly the same level of interest.
Extended career breaks and sabbaticals are becoming increasingly popular amongst all age groups and not just for people starting a family. Many people are choosing to travel around the world or pursue a lifelong goal or ambition without waiting for their retirement to pursue it.
By putting savings aside right from the first stage of your career, you may be better placed to take advantage of a career break, and the opportunities it might bring along.
The bottom line is that it's never too early to start planning and saving for your future. Saving early may have an enormous impact on your retirement and give you greater flexibility throughout your life.
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