When you?re just out of school and starting your first job, probably the last thing on your mind is how you?re going to support yourself in 40 or 50 years when you?re ready to retire. ?I?m only 23,? you?re probably thinking. ?I have plenty of time to worry about all that later.?
And in one sense, yes, you do have time? a lot can happen in 50 years. However, the sooner you start thinking about the future and preparing for it, the better off you will be later on. Even if money is tight now and you?re focused on paying down student loans and managing your monthly expenses, you can, and should, take steps to guarantee a secure future for several reasons.
Social Security: The Big Question
Depending on who you ask, the federal Social Security program, which provides a monthly benefit to Americans over age 67, may or may not continue beyond the next few years. While many pundits claim the system will be insolvent by the time today?s 20-somethings hit retirement age, just as many others claim that pending reforms will keep the program intact, and young people do not need to worry. In either case, there?s a good chance Social Security will look very different by the time you qualify, and it?s not a wise planning move to count on it for the bulk of your retirement.
Stock Market Fluctuations
Among the many victims of the 2008 financial meltdown and stock market decline were those near retirement age, who had significant investments through their 401(k) and other retirement plans. Millions of people saw their retirement nest egg decimated by the market crash. Younger people, though, were better able to weather the storm, as they have time to watch their balances grow in the coming years. By investing early and taking advantage of employer-sponsored retirement plans, you can make more aggressive investments in the early years for larger returns and shift to a more conservative portfolio as you age, maximizing the amount you can earn and minimizing the damage caused by market fluctuations.
Aging Is Expensive
There?s no denying it: Getting older is not cheap. As we age, we generally require more medical care and medications, which can put a dent in our savings. Those over age 65 qualify for Medicare, but if you develop a chronic illness, you could see your nest egg depleted even more. That?s why it?s important for younger people to learn about their options for taking care of their expenses as they age, such as life insurance, long-term-care insurance or final expense insurance. When you purchase life or final expense policies when you?re younger, not only do you provide a safety net for your loved ones, you also generally qualify for lower rates.
Long-term-care insurance is another type of insurance that you should research. While you may not need to purchase a policy until you get closer to retirement, understanding your options can help you prepare. For example, you may qualify for the federal long term care insurance program through your employer, which would cover your expenses in the event you?re confined to a nursing home; however, upon further research, you may discover you have other options that are less expensive and provide better coverage. Planning your retirement ahead of time helps you understand your options so when the time comes, you won?t make the wrong decision.
Tax Benefits
Of course, in the short term, saving money for retirement can give you some significant tax benefits. When you add money to your employer-sponsored retirement account, it?s taken from your pay before taxes, meaning that you pay a lower tax rate now. You?ll pay taxes on that money later, when you take disbursements from the account, but you?ll still pay less in the long-term.
Thinking about retirement when you?re in your 20s might feel like a waste of time, that worrying about it now is pointless. In fact, now is the time to worry and to make a plan so you?ll live out your golden years comfortably and securely.
About the Author: Sophia Jackson is a financial planner and insurance agent. She is a recognized expert on long-term financial planning and money management.
Photo:?http://www.flickr.com/photos/68751915@N05/6869770873/sizes/z/in/photostream/
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Related posts:
- You May Not Be Able To Afford Health Care in Retirement
Source: http://www.elderparenthelp.com/retirement-youre-20s
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