Many in the workforce believe that the longer they can be employed throughout their life, the better they will be off when it finally comes to retirement. Also, with the economy like it is right now, many Baby Boomers and Millennial alike find themselves returning or continuing to work and expect to work longer in order to have that health insurance and the necessary funds to put into their retirement. Unfortunately, working longer doesn’t necessarily mean a better retirement.
Saving for Retirement
A study conducted by the Employee Benefits Research Institute discovered that of the 56% of survey takers that said they would be extending their time in the workforce only 19% of them were actually able to do so. This is primarily because of health reasons or having to take care of a loved one for an extended period of time. There is also the unstable job economy to account for as well.
The best way to save for retirement and be prepared to leave the workforce is starting a retirement fund as soon as possible with compounding. Here’s how compounding works:
Say you invest $100 in a mutual fund that will invest both in stocks and bonds with a 6% interest rate at the beginning of the year.
By the end of the year that $100 becomes $106 because of the interest in the mutual fund. Keep saving up that money and soon you’ll be creating a sizeable retirement fund that can help you retire from the workforce sooner.
However, investing only once a year is going to be the slowest route. It is better to invest smaller portions of your paycheck weekly or even biweekly if you want to do bigger deposits with a mutual fund.
If you start saving at 20 about $10 a week with a higher interest rate, you’re going to have a healthy retirement fund by the age of 62. In fact, it could be between $96,000 or even over $100,000 just in savings that you can use once you are retired.