If you’re a member of Gen Z — those born
after 1997 — now is a great time to start investing for retirement. The power of
compounding returns is one of the best ways to grow wealth over time. And the earlier
you start, the less you have to set aside each month to reach your goals.
Consider that a one-time
$10,000 investment you make at age 20 would increase in value to more than $70,000
by age 60, assuming a 5% interest rate. Meanwhile, it would only grow to approximately
$43,000 if you make it at age 30. And the same investment at age 40? That would
grow to a mere $26,000. As you can see, when it comes to investing, time really
Here’s how to make the most of your investment
a Way to Invest
Even coming up with $200 can feel like a
daunting task at this point in your life. Not only is your starting salary likely
to be lower today than it will be in a few years, but you might also have student
loan debt and other bills to contend with.
The good news is that you don’t have to
invest a lot to begin building your wealth and preparing for retirement. Start with
what you can afford, even if it’s only $50 per paycheck. Look for ways to free up
a small amount of money in your budget each month so that you can contribute to
your 401(k) and start putting that money to work.
Create a plan for increasing your contribution
down the road. If your employer offers a 401(k) match, try to invest enough to get
the maximum. That match represents free money — and it’s the best deal you’ll
find in the world of investing. Once that money is in your account, it begins growing,
and it can boost your overall portfolio down the road.
Plan to increase your retirement account
contribution each time you get a raise. Depending on your company, you could
even plan an incremental increase in your contribution each year. For example, you
could arrange to increase your contribution by 1% each year up to a certain percentage
of your income.
The important thing is to get started and
then up those contributions as often as you can. Get in the habit of investing,
and you’ll be more likely to reach your long-term wealth goals even if you have
to start small.
Yourself a Cushion
No matter your situation, there’s a good
chance that, at some point, you’ll end up with an emergency where you must come
up with a significant sum of money all at once. This can be stressful, and you might
consider tapping into your retirement savings to help cover the cost.
However, it’s better to avoid using your
retirement investments for emergencies since an early withdrawal can result in hefty
penalties. Even if you get a 401(k) loan and avoid the penalties and taxes, anytime
your money is out of the market, it’s not working on your behalf. You might replace
what you withdrew, but you can’t replace the opportunity cost of time in the market.
This is why establishing an emergency fund is so important.
Go It Alone
Investing for retirement can be daunting
if you’re just starting out. Contact your WellCents financial professional to help
you set realistic goals to grow your nest egg over time and give you a head start
on the road to retirement.