Graduating college? It is time to think about retirement.
That’s not necessarily the advice millennials expect to hear, but it makes sense when you consider the power of compounding.
Saving “$5,000 per year only from ages 25 to 35 (10 years)” will generate a larger retirement nest egg than saving “$5,000 per year, but from ages 35 to 65 (30 years)”
Your income-earning ability is your “human capital”. Planning for retirement requires that you find a way to replace income generated by human capital with that generated by your investments.
… Your overriding financial goal: Every year, put aside 12% to 15% of your earnings for retirement, so by your 60s you no longer need the income generated by your human capital.
While 15% may sound like a lot, definitely do it if you can. In any case, start saving at least a small percentage and then try to increase it every year.
Of course, this advice is only applicable to college graduates who have well-paying jobs. So the first step in retirement planning is to find a job. I know, that’s easier said than done in many cases.
While I used to oppose the idea of college graduates living at home, I’ve come to believe it can be a way to enable new college graduates to save money and start putting aside money for retirement at an earlier age. This is especially true in high COL areas where renting an apartment can cost well over half your income.
To learn more on this topic, read Jonathan Clements’ “Financial Advice for New College Grads”.