Retirement Planning 101: Why You Should Start Saving Now

What Is Retirement?

Retirement is when a person stops working full-time, usually after many years of having a job. Most people retire when they get older (often in their 60s or 70s)​. For example, in the United States many people retire around age 65 to 67​. When someone is retired, they no longer go to work each day. Instead, they have time to relax, spend time with family, travel, or enjoy hobbies.

Retirement does not mean a person is bored or doing nothing. It just means they don’t have a regular job anymore. Many retired people stay busy and active in other ways. They might:

• Travel to new places or visit grandchildren.

• Learn new hobbies or do things they love, like gardening or painting.

• Volunteer in the community or spend time with friends.

Think of retirement as a new chapter of life. After working hard for years, people get to rest and have fun. But to enjoy this time, they need to have money saved up. That’s where saving for retirement comes in.

Why Do People Save for Retirement?

People save for retirement so they will have money to live on when they stop working. When you have a job, you earn a paycheck (money for your work). In retirement, you won’t get paychecks because you won’t be working. But you’ll still need money to pay for things like:

• Basic needs: food, a place to live, and healthcare.

• Fun activities: trips, hobbies, or gifts for your family.

• Unexpected costs: maybe fixing a house or medical bills as you get older.

By saving money during their working years, people make sure they have enough to cover these expenses later. Imagine if you stop working and have no savings – it would be very hard to pay for everything you need. That’s why saving for retirement is important. It’s like packing money away now so you can use it when you’re older.

Saving for retirement also helps people feel secure. Knowing that you have a “nest egg” (a bundle of savings) for the future can make you feel safe and happy. You won’t have to worry as much when you’re old because you prepared while you were young.

When Should I Start Saving for Retirement?

The short answer is: as soon as you can! It might seem strange to save for something that’s 30 or 40 years in the future, but starting early makes a big difference. Here’s why starting to save now (even if you’re a kid or teen) is a great idea:

• More Time to Grow: The earlier you start saving, the more time your money has to grow. Money can earn interest (extra money the bank gives you for keeping money there) or be invested to earn more money. Over many years, a small amount can grow into a much larger amount. It’s like planting a small tree that grows big by the time you need it.

• Build a Habit: Starting to save when you’re young helps you learn good habits. If you regularly save a part of any money you get (like birthday money or allowance), it becomes normal for you. When you’re older and have a job, you’ll already be used to saving.

• Less Pressure Later: If you save little by little now, you won’t have to save as much all at once later. Waiting until the last minute (just a few years before retirement) would mean you’d have to save a lot more money in a short time, which is harder.

Many grown-ups actually wish they had started saving earlier. In one survey, about 70% of retirees said they would tell their younger selves to save more and start sooner​. That shows how important time is. So even if you only save a few dollars now and then, it will help. For example, if you get $10 as a gift, you might save $2 of it. It may not seem like a lot, but over years and years, those dollars add up! Your future self will be happy and thankful that you started early.

How Much Should I Save?

You might wonder how much money is the “right” amount to save for the future. The truth is, any amount you save will help, and the more you can save, the better. Here are some simple tips about how much to save (in easy ways to think about it):

• Save a Part of What You Get: Try to save at least some of any money you receive. For example, you could save $1 out of every $5 you get. If someone gives you $10, put $2 into savings for the future and spend the other $8 on things you need or enjoy now. This way, you’re sharing money with “future you.”

• Make It Regular: If you get an allowance or earn money from small jobs (like chores or lemonade stands), try to save a little bit every time. Consistency is more important than the exact amount. Saving $5 every week can be better than saving $20 once and then nothing for a long time.

• Increase as You Grow: As you get older and start earning more (like from a part-time job in high school or your first full-time job), try to increase the amount you save. Many experts suggest saving around 10% or more of what you earn. So if you earn $50 from cutting grass, you might save $5 or more from it. If you earn $1000 a month at a future job, try to save at least $100 of it for retirement.

There’s no one magic number for everyone because it depends on things like how much money you will need when you retire. But a good rule is: save as much as you comfortably can, as early as you can. Even small amounts will grow over time. Remember, saving money is like giving a gift to your future self. Every dollar you save now is a dollar (and more) you can use later when you’re not working.

What Are Retirement Accounts?

You might have heard adults talk about things like a “401(k)” or an “IRA.” These are retirement accounts, which are special kinds of savings accounts just for retirement money. Think of a retirement account as a piggy bank for the future that has some extra rules and benefits to help your money grow.

Here’s what you need to know in simple terms: a retirement account is a place to keep and invest the money you’re saving for when you’re older. These accounts often have benefits like earning interest or investment gains, and sometimes even extra money contributions from employers. Some common types of retirement accounts include:

• 401(k): A retirement account you get through a job. Many workplaces offer a 401(k) plan to their employees. You can put part of your paycheck into this account so it will grow for the future. A great thing about 401(k) accounts is that sometimes the company will add money too. For example, if you save $100, your company might add another $100 as a bonus – this is called an employer match. It’s like free extra money for saving!

• IRA (Individual Retirement Account): A retirement account you can open yourself (or with the help of your parents when you’re young). It’s called “individual” because it’s not through a job – it’s your own account. There are different kinds, like a Roth IRA or traditional IRA, but the idea is the same: you put money in and leave it there to grow until retirement. If you’re a kid or teen who earns a little money (say you have a small business or summer job), you could even start a Roth IRA for kids with a parent’s help. It’s a way to start saving super early!

These accounts are special because they encourage people to save for the long term. They often have rules like “don’t take the money out until you’re a certain age” (so you keep it saved). In exchange, the money might grow faster because of tax benefits or employer matches (you don’t need to worry about the details now, just know that they help your money grow). The main point is that retirement accounts are safe homes for your money until you retire.

If all this sounds complicated, don’t worry. You don’t need to understand every detail right now. Just remember that when you start working, it’s smart to use a retirement account to save. For now, you can think of your piggy bank or savings jar as your first retirement account – it’s the start of your saving journey!

Conclusion: Save Now for a Bright Future

Planning for retirement might seem far away and a little hard to imagine when you’re young. But every big journey starts with a small first step. Saving even a little bit now can make a big difference later on. One day, you’ll be glad that you started saving early, because you’ll have a nice financial cushion (money saved up) when you’re older.

Here are some key takeaways to remember:

• Retirement is when you stop working as an older adult and have time to relax and enjoy life.

• People save for retirement so they have money to live on later – for things like food, a home, and fun activities – even when they no longer work.

• It’s never too early to start saving. Starting now gives your money more time to grow, like a snowball rolling and getting bigger.

• Save a little regularly – for example, part of your allowance or gift money. Over time, this adds up!

• Retirement accounts (like 401(k)s and IRAs) are special piggy banks for your future. When you’re older and start earning money, these accounts will help you save even better.

Be proud of any saving you do. Think of each dollar saved as planting a seed for your future. With patience and good habits, those seeds will grow into a forest of funds for you to enjoy in your retirement years. So start saving now, keep it up, and look forward to a happy future – you’ve got this!