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Start Saving For Retirement When You're Young

BOSTON (CBS) - The reality is that you are going to be responsible for your own retirement savings. Fewer employers are offering pensions to employees.

Waiting to start to save until you are 40 is a big financial mistake. You have already let the key years for saving pass you by.

If you start at forty and plan to retire at age 67 you have 27 years of savings and investing. But if you start at age twenty you have 47 years.

The longer you wait to start saving for retirement the more money you will need to save.

If you want a $1 million in your retirement nest egg, and I used an 8% return which is realistic, and you start at age 20 you will need to come up with $160 a month for your retirement account. That will amount to about $94,000 saved over 47 years.

If you wait until age 40 to start you will need to invest $880 a month, that's $284,000 or 3 times the amount if you had started earlier.

At 40 you could have kids needing braces, college tuition, a car. Then there is really no money left over for retirement savings.

I have included a chart to illustrate retirement savings at various times in your working career on our website.

You are never too young to start thinking about saving for retirement. A kid in high school with her first job should be introduced to retirement planning by her parents.

I do believe most young workers can become millionaires if they are disciplined about saving.

For example a 16-year-old has a summer job scooping ice cream at one of the many seasonal ice cream shops in Massachusetts. She makes minimum wage, gets some tips and all the ice cream she can eat. Having scooped ice cream for a summer all the ice cream you can eat grows old quickly! She could conceivably earn $3000 this summer. So what can she do for retirement planning?

She can open a Roth IRA. This year you can contribute up to $5000 to an IRA. But she only wants to use some of her money for retirement, maybe a $500. She opens an account with the Janus Funds in Colorado for their minimum is $500 for a Roth IRA.

If she is disciplined about this and contributes every year until she reaches age 67 she could very easily have over $1 million in her account.

One more thing: I would suggest if mom and dad can afford it to help the kids save for retirement by offering to match them dollar for dollar in savings. Gift the kids the money for spending and have them use their earnings for the IRA.

Assumptions:
Future value

$1,000,000

Retirement age

67

Annual return (%)

8

   

One

Monthly

Yearly

Age  

Time

Investment

Investment

---------  

 ----------

 ----------

 ----------

20

$26,859

$161

$2,208

25

39,464

243

3,287

30

57,986

368

4,924

35

85,200

564

7,451

40

125,187

876

11,448

45

183,941

1,395

18,032

50

270,269

2,316

29,629

55

397,114

4,158

52,695

60

583,490

8,920

112,072

65

857,339

You can hear Dee Lee's expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.

Subscribe to Dee's Money Matters newsletter here.

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