Money Matters

It’s never too early to start preparing for retirement.

When it comes to preparing for retirement, time is of the essence. A NerdWallet study examining the stock market found that over 40 years, the “potential cost of keeping money in a savings account rather than investing in the stock market (is) over $3.3 million.”

While investing always carries risk, it’s a risk worth taking when the expected reward is a comfortable retirement.

It’s never too early to start preparing for retirement. Here are tips to help teens, 20-somethings and 30-somethings incorporate retirement planning into their lives now.

Teens: Take advantage of low expenses and start investing.Eighteen-year-old JaVon Colbert plans to retire by age 45, and he’s on track to make it happen. He works two jobs and puts about $50 a week into his Roth IRA.

“I’m trying to find the balance of having fun now and working so that way I can have more fun later,” he said.

That healthy attitude toward money is key to preparing teens for financial success in the future. How can parents help?

Set up a custodial or guardian Roth IRA for your child(ren).

Help kids create and follow a budget, including a category to pay for fun activities and purchases.

If you are able, consider matching a percentage of each child’s retirement contributions with spending money.

The younger you start contributing to a retirement account, the better. According to a Roth IRA Calculator, if someone began contributing $3,000 a year at age 16, they would end up with $2.03 million by age 65. But if they waited until age 25, the total plummets to $1.07 million.

20s: Pay off your debts.As a 20-something, it’s likely that you’re a student or a recent graduate with student loans weighing on you. Or maybe you’ve just purchased your first home. You know it’s beneficial to prepare for retirement sooner rather than later, but what’s the right balance between investing and paying off debt?

In some situations, debt is actually preferable for increasing your investing potential. That’s something to discuss with a financial advisor, but the short explanation is that you’ll want to weigh “the opportunity cost versus the sunk cost of the interest rate.”

As NerdWallet explains, “A conservative but plausible return on investments is 6% per year. If your student loan interest rates are higher than that, you’d save more money by paying them off — and avoiding interest charges — than by investing.”

If paying off your debt now is the right call, start with those that have the highest interest rates, like credit cards. Then move onto debts with fixed rates and payments, like car loans or mortgages. As your debt-to-income ratio declines, you can put more money into your retirement accounts.

30s: Cut costs and keep investing.In your 30s, your income is likely a little higher and your debts are (hopefully) lower. Now is the time to reduce your expenses so you can put more into investments. That doesn’t mean you can’t have fun! Again, it’s all about finding that balance between being prudent now so you can have a great retirement lifestyle later.

See where you might be able to cut costs in these categories:

Entertainment and vacations.

Groceries and eating out.

Clothing.

Personal care products and services.

Subscription services (e.g., meal delivery kits, streaming services, apps).

Credit card payments.

Insurance premiums.

Let’s say you cut $10 from each category each month. That’s $600 in savings over the course of a year. Not bad! But what if you cut $50? That’s $3,000 a year to put into your investment accounts, and that makes a huge difference.

No matter your age, you can start investing for your retirement.

“There will always be reasons not to invest,” says Roger L. Merrill CLU®, ChFC®, CRPS®, managing director at Merrill Financial Associates. “This does not mean, however, we should move everything to cash when we get worried. ... For long-term investors, the greater risk comes from not investing and missing out on potential growth opportunities.”

Dr. Amy Osmond Cook is VP of marketing at Simplus, a platinum Salesforce partner.