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June 29, 2010 / Suzie

Suzie’s Top-4 Reasons to Start Saving for Retirement Right After (or During) College

Tomorrow, my personal challenge to save all my money for a week is complete! And then it will be time to buy groceries. It’s amazing what you can find when putting off buying things (for instance, I totally broke out the ramen noodles this weekend). Yummy financial savings!

Since I have been focusing on avoiding the numbers this past week, I figured that I would offset my week without spending challenge with a different challenge: a week of Top ___ towards financial education. Welcome to day two (day one found here).

Top 4 Reasons to Start Saving for Retirement Right After (or During) College

After reading through a variety of financial guides, it occurs to me that the biggest trend that every financial planner is stressing for college students is saving for retirement now. Why save so early when we can barely pay the bills now?

1. We are not our parents
Social security has done what it has intended to do thus far, but it’s not going to be what it is now when our generation hits 65. People are living longer and thus stretching social security beyond its means, and our parents’ boomer generation is going to trample the system. Essentially: we are going to need to rely on ourselves, unlike generations before us. It is on us, not the federal government, to figure out our retirement.

2. Financial practice makes perfect
Okay, maybe not perfect (nobody is perfect, especially when it comes to money), but getting in the habit of dedicating 10% of our paychecks towards retirement now (say $250 a month for a $30,000 salary) is a lot easier when making bigger bucks (say $625 a month for a $75,000 salary). Easing into this system makes saving for retirement easier later in life.

3. You don’t know when you’re going to retire
The 2007 Retirement Confidence Survey found that 37% of current retirees retired earlier than planned because of something unexpected, such as health problems or changes in their company such as downsizing. Don’t think that will happen to you? Tell your 47-year-old self that.

4. Compound Interest
Here’s the good news, and anyone who has done any research on retirement knew this one was coming. When it comes to retirement, it pays to be young. Why? Compound interest. It’s a pretty simple system. Say you make 10% interest a year, and you have $10. That means after the first year, you have $11. If you earn 10% the next year, you have $12.10 because the interest earned from the previous year built up from the following. Let’s take bigger numbers to heart. Say you put in $300 a month, every month, for forty years (age 25-65) at a rate of 10% annual return. Know how much you’ll end with? $1,752,666.52. That’s right, you’ll be a millionaire. So start now.

After being ever so commanding on what you should do with your finances, I have a confession. As a college senior, I am not investing towards my retirement yet; I am diverting those funds (about $250 a month) to a savings account that will be my nest egg after college. Once I am salaried and making real money, I vow that I will immediately start saving for retirement.

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