For a college student, retirement probably feels light years away. Between student loans and outrageously overpriced textbooks, saving can be difficult. Saving for a new car, spring break vacation, or even a home may be on our minds, but saving for retirement? Not a chance.
For most college students this is the perspective on retirement savings. I know it was mine before interning at National Life Group. What college students don’t know is how important, and easy, saving for retirement can really be.
For starters, there will never be a better time to begin saving
I used to assume, as I’m sure other college students have, that you shouldn’t start saving for retirement until you have paid off all your student loans. Unfortunately, the average individual with a bachelor’s degree now takes 21 years to finish paying off student loans. By waiting to save for retirement, you are missing out on 21 years of compound interest that a retirement account could provide. While you may feel like you have a lot of financial obligations now, if you plan to have a family, you will always have new financial obligations.
You can’t count on social security
While earlier generations may be able to rely on Social Security, individuals in their twenties are unlikely to benefit. According to the Social Security Administration’s 2018 report, Social Security trust funds will be depleted by 2032. Between inflation and unreliable benefits, it’s safest to assume full self-responsibility for your retirement. Saving now can get you the start you need for true long-term benefits.
It’s OK to start small
It’s easy to get overwhelmed and assume nothing you do can make a difference. The truth is, every small contribution counts. Maybe it’s skipping Starbucks and making your coffee at home or using reusable napkins instead of buying more paper towels. While setting aside only a little each month may feel futile, with time and the beauty of compound interest, the money you set aside now can make a huge impact later. Use this calculator to see how small savings can add up over time.
Contributing to retirement could reduce your taxes
Something all young adults should know, especially when getting ready to enter the workforce, is that with a tax-deferred retirement plan, you can save more on retirement while paying less in income tax. Because you don’t start paying income tax on the money in this plan until you receive it, you can save more money to accumulate interest and pay lower taxes. It’s a great way to save money while you save for retirement.
You are not alone
What you know now will propel you into your future. While college may seem early, it’s the right time to start thinking about saving for retirement. Do your research now so you have a plan when you enter the workforce full time. The money habits you form now will follow you in the future.