From Sandy Botkin: This will be the first part in a 5-part series that deals with the four biggest retirement mistakes among people at different ages. PLEASE share each of these posts. Part I: People in their 20s: Focusing too much on student debt Many young people make the mistake of aggressively paying off student debt out of their meager paychecks before they start saving anything for retirement. This is a BIG mistake. They are giving away the biggest retirement advantage: Time. If you start saving at age 22, you need to save half as much each year than you would if you started at age 32 to get close to the same dollar amount. For example, someone who puts away $7,000 a year in a mutual fund for 30 years will have just over 1 million at retirement. However, if they started saving for 10 more yours, this total rises to almost 3 million! This is particularly true for workers who get matching contributions from their employers. I was reading that almost 50% of employees dont take advantage of all the matching contributions that are available to them. HOW STUPID CAN THEY BE? This is FREE money. Thus, if you get matching contributions, you should at least contribute enough to take advantage of that matching contribution to the greatest extent. I would also advocate an increase in retirement contribution over the years until at least 10% of earnings is contributed. Of course, once you are maxing out the employer contribution, you can then put excess funds towards paying off student loans. Final tip: This is why I have always been against incurring large amounts of student loans for undergraduate studies. It can severely reduce retirement savings at a time that these savings would be crucial. Please share this post. Material Derived in part from my book, Achieve Financial Freedom:Big Time
Posted on: Fri, 12 Sep 2014 16:54:09 +0000
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