The Financial Student

Today’s post is a continuation of this week’s series: “I’m 18! What Should I Be Doing With My Money?“

Next up in this series, we’ll tackle what’s probably the last financial issue on your mind. Nonetheless, it’s extremely important:

Retirement!

Yes, I know none of us will be retiring anytime soon. But interestingly, we are the ones who benefit the most by saving. Those who wait to start saving will lose out on THOUSANDS, if not hundreds of thousands, of dollars by not starting as soon as possible.

Just one $2,000 dollar deposit in a Roth IRA (Individual Retirement Account) when you are 18 can grow to over $74,000 dollars by the time you are 65 (assuming an 8% return).

Invest the same amount when you graduate college at 21 and you’ll only have $59,000. Three years of waiting just cost you fourteen-thousand dollars!

Note: You don’t have to deposit $2,000 dollars if you don’t have that much. This is just to illustrate the benefit of starting as soon as possible.

Saving for retirement is easy. You just need to open a Roth IRA (Roth IRAs have numerous tax benefits that make them perfect long-term investing) and contribute money to it. Once it’s there, you can purchase investments like stocks, mutual funds, and index funds. To open the account you just need:

• Your social security number
• Your home address
• Your phone number
• And some money

If it helps, don’t consider this a retirement account. Consider it a freedom or opportunity fund. It’s purpose is to provide you with financial security when you are older and may no longer want to work. It simply gives you options later in life.

If for some reason you desperately need the money in a Roth IRA, you are free to take out whatever you have deposited. You cannot, however, take out your earnings until you are 59 1/2 unless you want to pay a penalty.

You can open a Roth IRA through many different companies and brokerage firms. I chose to open mine at E*TRADE. They don’t have any minimum account balance requirements, which is great for those of us who don’t have a huge cash reserve built up.

Saving for retirement is not something you want to wait around to do. There’s honestly no reason why you can’t open one the day you turn 18. I’m “only” funding my Roth with about $50 bucks, but it’s a start.

If you’d like, you can jump back to the previous post in this series: Learning the Basics of Money Management.