The Best Financial Advice: Start Saving Early

December 14, 2016

It might seem a bit premature to start saving money at a young age for a retirement that looks so far away. But the ideal time to do it is while you’re young. Find out why.

Contributing to your retirement plan when you’re young can have a significant impact on the amount of money you’ll have when it’s time to retire.

Take a look at the numbers and think about it:

Age contributions begin 25 30 35
Monthly contribution $100 $100 $100
Average annual yield 7% 7% 7%
Years invested 40 35 30
Contributions $48,000 $42,000 $36,000
Earnings $214,481 $138,105 $85,997
Value of acct. at age 65 $262,481 $180,105 $121,997

This is a hypothetical example for illustrative purposes only, and does not represent any specific investment product. It assumes monthly compound interest. The results of your investment will be different.

Welcome to the real world!

If you’ve recently started your first “real” job, you may be earning more money than ever. But you’ll also have more expenses. For example, if you’re no longer living with your parents, you have to pay rent and utilities, food, gasoline, insurance, and all the other things that go with being a grown-up. Plus, you may be paying off your student loans and saving to buy a new car. Think about retiring now? Well, yes, you should be.

Saving for retirement while you’re still in your twenties offers the possibility of benefiting from compound interest over time. What’s that? When interest generated in a savings account is added each month to what you originally deposited and interest is calculated on that slightly larger figure, you’re earning interest on interest—compound interest. It’s a multiplier effect: As interest is generated, the balance in your retirement plan grows, generating interest in each calculation period. The more that process is repeated, the larger your account balance will be when you retire. The money you invest for your retirement now could potentially give you 40 years or more of compound interest.

A plan that makes it easy

Contributing toward retirement is very convenient with the plans offered by employers. You no longer have to visit the bank or write a check every month—your contribution is automatically deducted from your salary and deposited in your retirement plan. And since you never see that money, you won’t be tempted to spend it. And another thing—try to increase your contribution whenever you can.

Your employer retirement plan probably offers several investment options. As a young person with many years ahead of you before retiring, you might consider investing in stocks through the funds offered by the plan. Those funds, or portfolios, as investments are known in retirement plans, are administered by professionals. All you have to do is choose the investments that correspond to the level of risk that you’re willing to take.

Although the stock market may fluctuate significantly when you invest in the short run, over the long term, stocks* have historically produced higher yields than other types of assets. In addition, they tend to outpace inflation. (Past yields do not guarantee future results.)

*Investing in stocks entails a high level of risk. Stock prices fluctuate and investors may lose money.

For more information about your retirement plan’s specific benefits, contact your company’s Human Resources Department or go to Trust Online.


Source: DST

The contents of this article are for informational purposes only, and are intended only to serve as a guide and an additional tool for helping you plan your retirement. Banco Popular de Puerto Rico, its subsidiaries and/or affiliates do not offer tax consultant, legal, or accounting services. If you wish legal, tax, or accounting advice, you should consult a professional specializing in those areas. Investment products offered in the Banco Popular’s retirement plans, including any possible earnings generated, are not insured by the FDIC, are not deposits or obligations, are not guaranteed by the Banco Popular, its subsidiaries and/or affiliates, and they entail risk, including the possible loss of the principal invested. Please read mutual funds’ prospectuses before investing.