How to start planning for retirement at 22?
April 7, 2011 by Retirementing
Filed under retirement planning
I have no knowledge about retirement except that I’d like to find a way to get 6% annual returns on whatever I invest in for retirement.
PS: Yes I know 22 is early to start planning, but I don’t want to put it off.
22 is not too early – compounding works best when you start early. A nice mix of about 75% stocks and 25% bonds should throw off 6% annually (note that the return is not guaranteed – this is a historic average) Try index ETFs,bond funds, growth funds, income funds and international funds for a nice diversified mix.
Buy a house. If you get 6% somewhere, inflation will also be 6% – but your house price will not go up, and its value will go up, and/or it will be paid off before you retire.
Otherwise, use your money for your current life and bills. There is no point carrying 22% credit card debt while earning 1% in a financial investment. {Annual return today for an investment in Vanguard mutual funds (i e sort of the stock market) was 1.4%}
Then get married and have kids. That will scuttle your retirement plans for a few years. { lol – but true. }
What you should do is read the book the richest man in babylon. It has a really good plan on how to live your life now and save for the future. Take 10% of your income and put it away in the bank every month. If you have any debt pay that off and whatever you were paying on the debt add to your 10% you were already putting away and that will increase your monthly savings. Continue to do this and you will grow your savings and have a nice cushion for the future. It is never too late to start saving for retirement. Bank of america has this thing called keep the change where when you use your debit card they round your purchase up to the next dollar and put the change into your savings account. That is something you might want to look into to.
Good luck and congratulations on being in the right mind frame already.
Good for you for starting so early. My favorite book for young people is “your money or your life” by Joe Dominguez. Your library might have a copy, if not it is on Amazon often. It is a very different perspective on how to manage money with the goal of being able to retire early.
If you really want to “invest” now, start with investing in your education about retirement planning and financial planning. The financial planning association website (www.fpa.org) has some very good information. So does vanguard.com. So does http://www.ricedelman.com. The certified financial planner program has a terrific certificate-course that if you really wanted a comprehensive education about these matters might be worthwhile to you (it’s a little pricey though – tuition about $5,000 for the whole program).
Start with the books recommended here, stay out of debt (!), learn how to budget and plan for your future, and then, when you have some education behind you, begin to look into investing.
Also, always remember, if it sounds too good to be true, it is probably not. Especially when money and investing is concerned. There are lots of “investments” out that that promise 8%+ returns but they often turn out to be scams.