Class of 2018: It Isn’t Too Early to Start Thinking about Your Retirement

A 60-second read by the Baron Team:  Congratulations 2018 College graduates! Throw that mortarboard as high in the air as you can and before it circles back down to earth, start thinking about saving for your retirement. You are most likely going to be responsible for setting yourself up for a successful retirement, so your best bet is to invest early and often.

Invest in yourself first. Most people think investing is the key to wealth, but while certainly important, you have to have some money first to invest. So as soon as you begin your first job out of school, start saving a minimum of 10% of your annual income for retirement. This will ensure that you invest in yourself first.  You should plan on saving this much or more for the rest of your working career.

Here is a behavior trick to help you accumulate savings: have money taken out of your paycheck automatically and deposited into a 401(k), 403(b), thrift savings plan, or other retirement account. Read our previous post on “What is the Best IRA for a Young Investor?”. Almost all employers offer retirement investment vehicles like these, where you can contribute a certain percentage of your salary for the future. What you put into the account will grow tax deferred and be earmarked specifically for retirement. Because your contributions are automatically saved, it forces you to invest, which you might not otherwise do, and the money will be spent. Consider the IRS’s system of collecting taxes throughout the year through tax withholding. They know that if it was up to us to save and pay them one big check at the end of the year, we would have already spent the money.  The same is true with investing. If a percent is taken out of every check directly, you won’t miss it. This is all part of behavioral finance, or the study of human behavior in financial decision-making. A fascinating field that we wealth advisors see play out on a daily basis.

Another behavioral finance mental trick is to keep three to six months of living expenses in a separate account from your checkbook, also known as an emergency fund. This will provide you with peace-of-mind to always know that no matter what bills come in or what happens in your career, you’ve got this safety-net of cash at your disposal that you can tap into. Keep the money liquid by putting it in a savings account or money market mutual fund. This will help protect you from those potential future financial downturns.

As always, if you have any further questions, don’t hesitate to contact the Baron Financial Group Team.