Benefits of starting a retirement fund early

The first long-term financial priority a recently-graduate college student usually thinks of once they finish is school is starting to pay off their student loans – albeit, this doesn’t apply to anyone with a degree.

However, another long-term plan that often goes unnoticed is a retirement fund. Preparing for the future is key before it’s too late to plan one at all. Here are some FYI’s in regards to retirement funds.

No. 1 – Options depending on your employer, personal choice
Most employers give you the option to contribute to a 401(k) fund, and most will match your contribution to a certain amount while others contribute based on other statistics, for instance $1 per hour worked.

The most common way is matching a percentage that you contribute. For instance, if you contribute 3 percent of your gross income each pay period, they will put in an equal amount of money into your retirement fund. It’s free money, plain and simple, and it’s up to you to take advantage of it.

No. 2 – Deductions are untaxed, and don’t count against your income

Your total deductions to a retirement fund decrease the amount you owe for taxes at the end of the year. For instance, if you earned $45,000, and contributed $3,000 to a retirement fund, then you owe tax on $42,000. If you’re single, this is an easy way to earn more of a refund or owe less than you might.

No. 3 – The money compounds over time
The interest accrued can add up to thousands of dollars over time. For instance, a person with a $10,000 balance in their account with a return rate of 7 percent will accrue $700. If the rate stays the same over five years, that person will have $13,500 in their retirement, and that’s based on if they don’t contribute anymore to their fund.

No. 4 – Think about the age which you want to retire
A 2014 Gallup poll determined the average retirement age is 62, but is that when you want to ride out into the sunset? Maybe you want to retire a few years earlier than that OR you wouldn’t mind working a few more years.

To understand how much you can save before you call it quits, check out our retirement calculators to see how much you can save by starting a retirement account. Click here to access our retirement and other financial calculators.

Crunch the Numbers