The Long-Term Impact of Skipping Retirement Contributions in Your First Job
The best time to start contributing to a retirement account is the first day you begin your first job, when retirement is literally a lifetime away.
It might not seem like a big deal at the time. But later in life, when you’re older, you’ll appreciate starting the process early.
Read Next: Humphrey Yang: Here Is How Much Money Your 401(k) Should Have
Find Out: 9 Unusual Ways To Make Extra Money (That Actually Work)
Here’s a look at the long-term impact of skipping retirement contributions in your first job.
You Won’t Maximize the Compounding Effect
The earlier you start contributing to a retirement account, the more time your money has to grow through compounding, according to Nancy Gates, lead educator and financial coach at Boldin, a financial planning platform that can help you strategize a retirement plan.
“Even small, regular contributions can add up significantly over decades,” Gates said. “Starting now and increasing contributions later is far more effective than trying to catch up down the road.”
You’ll Have To Accelerate Savings When You’re Older ...
If you don’t start saving for retirement at your first job, you’ll be forced to save much more aggressively later in life – when you probably have to fork over a lot more money on monthly bills.
A blog from Zynlo Bank cited data showing that a 50-year-old might need to save nearly one-quarter of their income to meet retirement savings goals, versus 5% for a 25-year-old.
… And That Still Might Not Give You as Much Money
When you skip making retirement contributions at your first job, you’ll not only need to play catch-up later in life – you’ll likely have a smaller nest egg.
A blog from Savant Wealth Management cited this example: Suppose you begin saving $6,000 a year at age 25 and stop at age 35. Your 401(k) balance could still be bigger than if you started saving $6,000 a year at age 35 and continued until age 65.
You’ll Miss Out on Free Money
One of the biggest advantages of contributing to an employer-sponsored retirement plan is that employers often match your contribution. This amounts to free money you’ll miss out on early in your career, which means less wealth later on.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
More From MoneyLion:
