Retiring in college: saving ahead after 20 hard years
I know that I haven’t technically entered the workforce yet, but I can’t wait to retire.
I can already see myself on a senior booze cruise to the Caribbean. Laying on the balcony lawn chairs, with all the other geriatrics and their orthopedic shoes. Some people say that college is the best four years of your life.
Just you wait.
That is why I am planning on starting my retirement fund this year.
Planning for the future is important in our early 20s. The sooner you start planning your retirement, the sooner you can maximize compound interest.
But don’t let me lose you with these terms. Compound interest is the interest you earn with an investment, plus the interest earned on that return. It’s essentially the interest on an interest, and it increases exponentially as time passes.
You’re 20 years old and you would like to retire at 65. You invest $1,000 with a very generous bank that gives you a 10 percent annual return in interest. That’s $1,100 after the first year. In the second year, there is an additional 10 percent interest on that $1,100. In 45 years, that initial investment of $1,000 will become $72,890.48.
You add $25 to that initial investment every month for the next 45 years. That’s about five trips to Starbucks. At the end of your investment, you will have $288,561.93.
That is Starbucks money for days.
Most people start saving for their retirement in their 30s. But if you invest at the same rate at age 35, your ending result will be $109,409.75. That’s less than half of what it could have been if you had started in your early 20s.
Banks don’t usually give out 10 percent interest rates, but the example shows that time is on your side right now.
“But Isabella, I have no money. I am a broke college student,” you say.
Welcome to the club, friend. We are all a little short on funds these days, but regardless of your wallet size, everyone can start thinking about retirement savings.
I know you want so badly to join your friends on the spring break trip to Cancun. It’s March in Buffalo, everyone wants to go to Cancun. But imagine sitting on that same beach when you are 65 with thousands more in the bank.
It’s up to everyone to decide how they can manage to put away money. Maybe you are just trying to pay for groceries and gas right now. That’s important, but maybe over the summer set a goal to make a few extra bucks to invest.
I worked two jobs for a while and have managed to set aside $2,000 that I plan to invest. I badly wanted to spend that money on plane tickets to go see my friend in England over break. But I don’t like my friend and I just want to invest in a mutual fund.
What’s a mutual fund? I am so glad you asked. A mutual fund is a pool of different investments in stocks, bonds and other assets. These different investments form a portfolio.
Mutual funds are a decent option for young investors, since college students may not have a job that qualifies them for a 401(k). A mutual fund also allows you to invest in multiple areas. Picking one stock or asset to invest in now is not wise for beginners who don’t know the market yet.
It is important to consider the future of the economy when deciding if you should start investing. We live in an age where we can’t count on the social security checks our grandparents rely on today. Social Security will soon die, just like our grandparents.
Right now, there is a disproportionate amount of people retiring as opposed to people working. The baby-boomer generation is using up most of the social security reserves. The social security trustees expect funds to be completely exhausted by 2034.
Who knows if they will work out a plan in the meantime to gain more funding for the future. Still, a plan of action in investments is a safe route to go.
Let’s face it, you’re not that young anymore. If you’re in your early 20s like me, then almost a quarter of your life has passed already. It’s time to start thinking about that retirement booze cruise.
Isabella Nurt is the assistant features editor and can be reached at firstname.lastname@example.org and on Twitter @Nurt_Spectrum.