Young people think they will live forever. They also expect to be in the same physical shape 60 years from now because they go to the gym regularly and eat plenty of kale. Retirement seems to be something in the distant future. How can you make the case that you are never too young to start saving for retirement?
1. Remember college? You want to make the case that time passes quickly. Here’s a great example: Remember when you first started college how it seemed like it would be forever until you graduated? (They do.) When you looked back, didn’t it seem your college years went by so quickly? (They did.) Retirement can sneak up on you too.
2. Financial independence. Wouldn’t it be great to work because you want to work, not because you need to earn a living? (Yes!) Having a robust retirement savings plan plus an investment plan from an early age helps put you on the path to financial independence. One day, you might look at your accumulated financial assets and say, “I could stop working if I wanted to.”
3. Long-term growth. Let’s assume their retirement savings plan would include putting money into the stock market. Statistics show good quality U.S. stocks have returned 10% on average for almost 100 years! This has been a long-term, historical rate of return. The stock market doesn’t return 10% every year. Some years it has gone down. Why? Because the stock market and the economy move in cycles. By investing early, time is on your side.
4. Don’t leave money on the table. Let’s assume their employer has a retirement plan. The company puts a certain amount aside, providing the employee is also contributing to their retirement plan. In other words, if you don’t contribute, neither does your company. This is a benefit of working for your employer. Make sure you take advantage of it.
5. Money talks. It says goodbye. You pay taxes on your salary. Your retirement savings is often taken from your paycheck before taxes are applied. Why? Because the government will get their share when you eventually take it out! If in the U.S. you open an Individual Retirement Account (IRA), the amount you contribute is not counted as part of your taxable income up to the maximum contribution threshold. That portion of your income is taxed if you didn’t contribute to your IRA or company retirement plan.
6. Compounded growth. Albert Einstein is reputed to have called compound interest the eighth wonder of the world. Why? Because your money earns interest. Your interest earns interest. Sometimes the best thing you can do with your money is to put it somewhere and leave it alone.
7. If you keep it, you will spend it. Put another way, “Pay yourself first.” For most of us, extra money burns a hole in our pockets. We find something to spend it on. When you save the money instead, it increases your net worth. Out of sight, out of mind.
There are many good reasons for starting to save as early as you can.
Bryce Sanders is president of Perceptive Business Solutions Inc. His book “Captivating the Wealthy Investor” is available on Amazon.
For more ideas about talking with clients, try:
- “How to talk to millennials about insurance” (MDRT member exclusive)
- “Having difficult conversations” (MDRT member exclusive)
- “The power of asking questions” (MDRT member exclusive)