You've just started a new job, and now you're trying to figure out how to plan for the future. Retirement seems a lifetime away at this point.
Just when should you start planning for your retirement?
As soon as you're able to, experts say. Even though it doesn't have to be the first thing those taking their first job think about, planning for retirement should be considered as early as possible.
The earlier the better is good advice for when to start planning for your retirement.
Most experts agree retirement planning is something that the earlier it is started the better prepared young workers will be when it comes time for them to retire. There are varied ways to save for retirement, but all investment plans work better when started early.
According to Peter Holloway, senior vice president and financial adviser at Hazlett, Burt & Watson in Wheeling, "As soon as possible," is the best time to start a retirement plan for a number of reasons.
"A 401(k) is the easiest way to do it," he said. "The money, when it is put in, is pre-taxed, that is you don't have to pay tax on it initially. Second, 401(k)s are typically matched. That's free money from the boss. Even a $10 to $25 investment adds up. It's the compounding that does it."
Q: When should you start planning for retirement?
A: The earlier the better. If possible, maximize your contribution to either an IRA or employer-sponsored 401(k) plan. If you start early enough, you can enjoy years of compound interest that will help your retirement grow as you age.
He said if money was taken, and not invested tax differed, the person would not get the full amount. The money that would have been taken in tax is compounding as well. When it is taken out, at retirement, it will be taxed at a lower rate.
"Even someone who might only start saving when they are 50 still has time for the money to appreciate, just because of compounding," he continued. "A little here a little there adds up."
Holloway said an IRA is an savings option if someone is not covered by a retirement plan at their work. He also suggested talking with a financial professional to personalize a plan.
"These are long-term investments," Holloway said.
"You want to start out with a good foundation. A small investment early can make a big difference."
The experts at Money Magazine offer the following example of why starting a retirement plan early is the best bet for workers:
"Here's an example of what a big difference starting young can make. Say you start at age 25 and put aside $3,000 a year in a tax-deferred retirement account for 10 years - and then you stop saving - completely. By the time you reach 65, your $30,000 investment will have grown to more than $472,000, (assuming an 8 percent annual return), even though you didn't contribute a dime beyond age 35.
"Now let's say you put off saving until you turn 35, and then save $3,000 a year for 30 years. By the time you reach 65, you will have set aside $90,000 of your own money, but it will grow to only about $367,000, assuming the same 8 percent annual return. That's a huge difference."