When you are in your 20s (and for some people it is the same reasoning in their 30s), you don’t necessarily think about retirement planning. In fact, you are more concerned about finishing school, getting a good job, making money, paying off your debts, getting married, buying a house, having kids, etc. You may think that retirement planning is for old people, that you don’t need to think about retirement and that you will surely end-up with a pension plan or that you will manage it when retirement time comes around. However, we should all consider retirement planning as soon as possible. Ideally, your retirement plan should start as early as you when you land your first job… while still in school.

The power of compound interest; the very first reason to start a retirement plan today!

It is true that you don’t know when you are going to retire, or how much income you will need. But one thing is for sure; don’t count on the government or on a big fat pension plan to make your retirement comfortable; this ain’t going to happen! So if you have to put money aside in order to retire richer and happier, you should start as soon as possible. You don’t think that $25/month would make a difference? Here how it goes: $25/month at 6% gives:

4 096.98 $ 10 years
7 270.47 $ 15 years
11 551.02 $ 20 years
17 324.85 $ 25 years
25 112.88 $ 30 years
35 617.76 $ 35 years
49 787.27 $ 40 years
68 899.82 $ 45 years

And the math doubles when you do  $50/month:

8 193.97 $ 10 years
14 540.94 $ 15 years
23 102.04 $ 20 years
34 649.70 $ 25 years
50 225.75 $ 30 years
71 235.51 $ 35 years
99 574.54 $ 40 years
137 799.63 $ 45 years

As you can see, this is very profitable to start at a young age since you can get used to dropping $50 per month in your investment account at the age of 20 and get to a nice 137K in your pocket when retirement hits at 65. If you increase your systematic investment each time you get a raise, you will end-up with half a million in investments just with the power of compound interest.

You don’t need a complete retirement plan; just a line of direction

If you are in your 20s or 30s, it is true that you will go through different life events that will change your financial situation. These are the 2 decades where you will go through the most important financial steps of your life. You may change careers, move outside the country or get married. However, this won’t change the fact that you need money at retirement.

This is why establishing a line of direction (through an investment plan, asset allocation and systematic investments) will insure a comfortable retirement whenever you decide that waking up at 5am is too early for you ;-). The base of your retirement plan will follow you through your life and only serves to push your net worth higher in the meantime.