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4 Reasons You Should Start Saving for Retirement NOW | Personal Finance Series

one of the courses that I teach

relatively frequently is personal

finance and we get to a section of the

course where we talk about investing

investing for a variety of different

reasons but also for retirement and we

know that that's a very important

process and we do this thing called an

investment plan students identify what

are the different things their goals and

objectives for investing and ultimately

what are the things they could invest in

that will help them accomplish those

goals and what they can contribute today

and a very common thing that I see is

there's one a lot of uncertainty with

regards to investing and I think part of

that is due to the latest financial

crisis and how we obviously saw the

negative impact of investing and how you

can lose quite a bit of money truthfully

but the other thing is I think there's

always this belief that I'll be in a

better position in the future to invest

and I have this mental checkbox that if

I just accomplish these things then I

can go ahead and invest but I'm going to

present the argument that really you

want to invest as soon as possible and

so I'm going to present what I think are

four reasons to begin contributing to

either your 401k or potentially a 403b

or maybe even a Roth or traditional IRA

and why you should start sooner than

later even if it's not the thousands of

dollars that you want to why you should

start sooner than later so the first

reason or the first argument I'm going

to raise is compound interest now

compound interest is a beautiful thing

in finance and it is essentially our

money the money that we earned

previously we start to earn money on

that money and what happens with

investing is there becomes this kind of

cascading effect where the original

contributions and money that we've

generated from those contributions we

grow on top of that and then on top of

that and it really can snowball very

quickly just to give you a little bit of

an illustration so you understand how

this looks let's just say that we wanted

to invest two hundred and fifty dollars

a month

for 25 years and we were going to and

let's say we were gonna earn a moderate

8% return now 8% mum some people might

say well that's unrealistic well over a

70 to 80 year period the SMP 500 which

of course tracks the performance of just

a little bit over 500 large-cap equities

earns around 8% so it's a fairly

conservative figure now on a

year-to-year basis there can be

obviously declines and rather

significant increases but if you spread

that out over a period of time that's

really what you could potentially earn

assuming that you use the buy and hold

strategy which is you're buying the

security and you're holding it for a

long period of time if you're buying and

selling commonly referred to as trading

and doing that on a regular basis you

might not get the same benefit and you

really might be doing yourself a

disservice because research has shown

that we don't really invest very well

and we make decisions based upon emotion

so there's something to be said about

buying something and just holding it for

a period of time now we're investing for

25 years now this might not be accurate

because if you start investing at 20 you

might have 35 potentially 40 years or

more in investing so just know that this

number is based on 25 but if you start

investing earlier which I encourage you

to do you're only going to give yourself

that much more time and as you get into

the later years that's when your

investments begin to really start to

grow so let's just say hypothetically

we're going to invest 250 dollars per

month

for 25 years earning a conservative 8%

interest now over the course of that

period of time we would be investing

essentially 75,000 dollars right so if

you were to dump that money into you

know your savings account or put it

under your mattress which I certainly

don't recommend but it's an option you

would have 75,000 dollars right interest

on savings accounts is basically nothing

Reds you're an earn point one percent

unless you use like a high-yield one but

if you were to invest it in a good ETF

mutual fund earning about 8% you would

actually have 200

$37,000 from that $75,000 that you

contributed right that is the power of

compound interest now the hard thing is

it becomes very difficult to catch up

when you're investing later in life

right you can invest the same

seventy-five thousand dollars starting

at 40 and you're gonna end up with a

much lower figure than if you were 20

invested that amount stopped at let's

say 35 and you just allowed it to mature

and continue to grow over those next

subsequent 20 to 25 years so the sooner

that you begin you give yourself a lot

more options and one of the worst

possible situations could be if you're

you know starting a little bit later in

life and playing catch-up and hope

wishing that you would have done some

things differently the next reason I

would argue that you want to start

investing is your contributions are tax

deductible and reduce your taxable

income so if you ever gotten one of

those unfortunate tax bills at the end

of the year right you calculate you take

your adjusted gross income you itemize

your deductions if you do or you take

the standard deduction any kind of other

benefits that you receive and you

calculate this is how much I owe in

taxes and in the event let's say you owe

six thousand dollars in taxes and you

only contributed five thousand dollars

towards taxes which means you're gonna

pay a thousand dollars to the government

now anyone who has done that knows that

is a not very fun process right that

feels very bad so the conventional

wisdom is well now I have to go back to

my employer and I have to adjust either

my filing status so if I'm filing as

married maybe I need to go to married

holding at the single rate or I need to

change my allowances right so instead of

going from four allowances maybe I

dropped to two or to one and that's

certainly something that might work

right if you were to look at the numbers

you could zero in on your tax liability

assuming your situation was pretty

similar year-to-year the other thing you

could do is actually contribute or

contribute more to your 401k or your 403

B or your traditional IRA now what that

does is that

dueces your adjustable gross income so

while you're contributing to your

retirement the other thing that you're

doing is you're reducing your adjustable

gross income which means you're gonna

owe less on your actual taxes and that's

something that I've personally done as

I've constantly been kind of tweaking

allowances and withholdings and those

sorts of things is you know instead of

or more withheld on my paycheck looking

at well maybe I can do something that

actually benefits me long-term while

also reducing my tax footprint in the

process I mean that's certainly a very

good trade-off and truthfully because

it's the deductions that you contribute

to your 401k or your 403 B if they're

taken out of your paycheck every two

weeks or every month because they're

taken out before you pay taxes you might

contribute $250 towards your retirement

but it might be only costing you

depending upon your tax rate a hundred

and seventy five dollars or two hundred

dollars and so you're you're saving a

little bit of money and your money's

going a lot further as well now the

other thing and this really only applies

to 401ks is there's often free money

available many employers that offer

401ks as a benefit to their employees

will match contributions so if your

employer for example matches up to three

percent you contribute three percent

they'll match that you're essentially

contributing six percent of your gross

income into retirement

just giving you further opportunity to

grow your retirement and allow it to

become a sizable figure so that you have

enough to retire comfortably and do some

of the things that you want to do

whether that's travel or volunteer or do

mission work I mean whatever it is that

you feel comfortable again it gives you

options the fourth reason that you need

to be contributing to your retirement

regardless if it's a 401 K 403 B

traditional or Roth IRA is Social

Security will simply not be enough you

can go into the Social Security's

website I think it's ssa.gov and you can

use their tool to calculate what your

potential benefit would be and if you

can understand

and any of that please let me know

because it is there's probably no

website more confusing than the social

securities website and the tables that

they use to figure out how much your

contributions are in different things

but they have a really cool calculator

that if you log in you can do some kind

of predictions and find out how much you

would have at retirement or retirement

age this can be a really good way to

figure out if you receive Social

Security benefits what that would be but

what you'll find is it's not going to

replace your income and as a result

unless you want to be struggling

financially a retirement or have to work

later on in your life you really want to

have a separate retirement account

available and really use Social Security

as kind of a supplement right knowing

that you're gonna have that benefit but

using it to do really cool stuff if

that's something that you are interested

in so for good reasons on why you want

to start contributing to your retirement

sooner than later the greatest among

those is of course giving your money the

greatest opportunity in the longest

duration of time to grow thus increasing

the amount of money you have at

retirement giving you the opportunity to

retire comfortably thanks for checking

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