Investing is no longer just a nice idea. It is required for you to be able to afford to retire.
And while it can be tempting to put off investing until you are more established in your career and earn more money, starting sooner can vastly increase your chances of saving enough money to enjoy retirement.
Social Security is hardly enough to retire on, and inflation is causing prices to climb quickly. Investing is no longer optional, and the sooner your start, the better. Here are five reasons you shouldn't wait.
Your money is losing value (Inflation)
Everything is starting to cost more, and inflation is to blame. Eggs, butter, gas, housing, and even airline tickets are more expensive than ever, making it harder to handle day-to-day expenses. And if you’re not investing, your money is becoming worth less and less every month.
This is because what you could purchase with $100 a few years ago vs. what you can purchase today are vastly different. Inflation has eroded the purchasing power of your money.
To keep up with inflation, you must invest in assets that increase in value at the same rate (or faster). Historically, investments such as stock index funds, real estate, and I Bonds keep up with inflation. This allows you to preserve the purchasing power of your money, and even outpace the rising costs of goods and services.
Compound interest works like magic
Investments usually grow year-over-year as the economy expands, but compounding is the most impressive investment characteristic.
The concept of compounding is also best described by a historical figure, Benjamin Franklin. Compound interest is when your “money makes money. And the money that money makes, makes more money.”
But compound interest works best when you give it time to grow. For example, if you invest $100 per month for 5 years at a 4% return, you would have invested $6,000 of your own money and earned just over $629 in interest. But if you continue to invest $100 per month for 40 years, you will have invested $48,000, but earned over $70,000 in interest!
You want to retire someday
Retirement isn’t guaranteed these days. With worries about the sustainability of Social Security and the loss of workplace pensions at most companies, the quality of your retirement is in your hands.
And this means you have to invest your money to have a chance at letting it grow into a respectable nest egg by the time you reach retirement age. Most finance professionals recommend investing at least 10% - 15% of your income, but depending on your income, savings, and age, you might need to invest more.
You don’t need a lot of money to invest
A common myth about investing is that you need thousands of dollars to make any difference at all. Or that you need to be able to invest a lot of money to open an investment account. But this is not true at all.
You can invest very small amounts in your workplace retirement account (like a 401(k) account), such as 1% of your paycheck. And sometimes your company will match those investments up to a certain percentage of your income.
So don’t wait until you have more money to invest because every little bit counts and can grow over time.
You will live a long time
More people are living longer lives, and chances are, you will too. And while this is an amazing reality we enjoy today, it does mean that our money needs to live longer too. Although many jobs allow remote work and don’t involve hard labor, this doesn’t mean that you can work forever.
Investing is one of the only ways to ensure your money is around as long as you are, and it can help you retire. But you need to start now to allow it to grow into an amount that can sustain your lifestyle.
Retirement experts suggest that you need at least 25x your annual spending amount to enjoy retirement for 30 years. This can allow you to withdraw 4% of your principal investment each year (adjusted for inflation), without running out of money.
Investing is easier than ever thanks to free investing apps and low-cost index funds, but you need to start now. The longer you wait, the harder it is to catch up, and you could risk needing to work beyond the traditional retirement age.
Don’t wait until you have “enough money” to invest, but simply pick an amount you feel comfortable investing each month, and start today! This is one of the great money moves you can make to have a brighter financial future.
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