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Youth is wasted on the young. Often, money is, too.
Back in my corporate days, when I managed scores of retail stores and hundreds of employees, I stressed the importance of planning for retirement—as well as saving for future goals—with every person I hired. Before the start of their very first shift, I would sit down with each new team member and show them how to save for retirement without stress, worry, complexity, or pain. Within a few minutes, I could literally see the difference in their physiology as trepidation drained from their facial features and, after we spent 30 minutes examining their options, confidence began to take over once they realized planning for retirement is much simpler than they thought.
Most of these employees hadn’t given much thought to saving for the future: maybe they’d heard their parents or spouses maunder about stocks and bonds and mutual funds, but they hadn’t considered which path to take because planning for the future, especially with respect to finances, is overwhelming, daunting, boring. There are so many options, so many so-called experts, so many ways to screw things up. So, like many of Americans, they stood stuck in analytical paralysis, opting instead to postpone the decision for another time in some nonexistent hypothetical future. You know, “one day.”
One day: these two words are dangerous because they give us an excuse to shelve important decisions that radically influence our future. Waiting for “one day” to arrive doesn’t solve the problem—it makes it worse. Each day we wait, the worse it gets.
Just as with my employee orientations of yesteryear, I want this essay to serve as an inspirational and informative “sit-down” in which I clear the fog of decision-making and help you, the reader, make an informed decision based on what I’ve done with my own financial future. I truly believe that after reading this step-by-step process, you can plan for retirement in less than an hour.
Using screenshots and my personal finances as a concrete example, I provide the necessary tools and a step-by-step strategy for you to quickly understand how easy it is to begin saving for retirement, regardless of where you stand on the socioeconomic ladder. Not only retirement, though—I also want to help you save for other future objectives: establish a Safety Net emergency fund, build wealth with smart investments, and own your house outright, if that’s a dream of yours.
And most important—I want it to be simple, because I know, based on years of experience, if I can make the complex concept of retirement planning simple, then you have a much better shot at getting started immediately.
Ultimately, I hope to eliminate the fear of financial planning and help you realize it’s simpler than you think.
7 Retirement Myths Debunked
Before I get to my examples, I’ll allay your fears by addressing a few of the worries I’ve heard throughout my years of helping others set up retirement accounts:
Myth 1. I’m too old to save for retirement. I frequently hired employees who were older than I was—often in their forties and fifties—with no retirement-savings plan. Fear had long ago set in, and they figured it was too late. They were stuck; they had missed their opportunity. Not true. While it’s true that you’re better off starting at age 25 than 50, it is also true you’ll be better off starting at age 50 than, say, 70. Then again, 70 is a better start than 90, isn’t it? The past is the past. We must stop peering at the rearview and instead look ahead toward the horizon. As long as you’re still breathing, it’s never too late to start. It’s never too early, either.
Myth 2. I’m too young to save for retirement. Too young? Are you insane? If you’re younger than 30, you have it made! Young people, no matter your tax bracket, have a significant opportunity to become truly wealthy thanks to the power of compound interest. Someone who invests $25,000 by age 25, with a 12% rate of return, will have more than $2 million by age 65—even if he or she doesn’t add another dollar after age 25. Conversely, if that same person waits until age 30, he or she will have to contribute more than three times as much to achieve the same outcome. The lesson? Compound interest is the best way to grow your money over the long haul—so start while you’re young. To visually illustrate the difference between starting at age 25 vs. 35, check out this Business Insider graph:
Myth 3. I don’t make enough money to save for retirement. Actually, there is no reason you shouldn’t retire a millionaire. That’s right: virtually everyone, even minimum-wage earners, has the opportunity to be a millionaire when they retire. It sounds too good to be true, but the math proves otherwise: a 25-year-old who sets aside only $23 per week will retire with more than a million dollars if the money is invested properly (12% rate of return). Okay, so maybe you’re not 25 anymore—me, either! That’s all right—us older folks simply need to adjust accordingly. Betterment has an investment-and-retirement calculator to help you understand exactly how much money you need to save based on your age and financial objectives.
Myth 4. Inflation will hurt my retirement nest egg. This is the only myth that is partially true; however, its truth is irrelevant. While it is true $100 dollars ten years from now will probably possess less buying power than $100 today, the flip side of that coin is also true, and considerably more important: your $100 ten years from now will be worth infinitely more than your friend’s $0 invested. In fact, solid investments are the only way to outpace inflation. It is better to invest your $100 than keep it in a bank or under your mattress.
Myth 5. I’d rather spend my money on something else. When intentions are good, this excuse occasionally sounds like the most compelling reason to avoid saving for the future. True, we sometimes cling selfishly to money, using our income to purchase superfluous trinkets of ostensible success (new cars, shiny gadgets, accoutrements of consumerism), but frequently we want to use our money to contribute beyond ourselves (charities, nonprofits, and loved-ones in need). Contributing to others is certainly admirable, and I believe giving is living, so I want you contribute generously, but I’ve found the best way to help others is to help yourself first—the best way to give generously is to have more to give. Investing in yourself first helps you flex your giving muscle. There’s a reason airlines tell you to “secure your own oxygen mask before helping others”: if it’s easier to breathe, it’s easier to help people in need.
Myth 6. The stock market isn’t safe. Translation: you don’t understand the stock market. That’s okay: I don’t completely understand the stock market, either—not intimately anyway (I am not a financial advisor, nor do I play one on the Internet). The only people who must have…