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Invest Young Retire Young
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Young investors have a huge
advantage that will allow them to secure their
financial future without much effort. There are
basic lessons that will help secure your future and
allow you to have more fun now.
Social Security and pensions probably won't be
around when your teenager reaches retirement age. In
the last ten years we've experienced a large
reduction in pension plans offered to employees.
Employers are replacing pension plans with
contributory retirement programs. Unfortunately,
according to a report of the National Association of
State Boards of Education, "most workers with access
to these contributory programs are not participating
sufficiently to allow them to retire in their
sixties without suffering a great decrease in their
standard of living."
This may mean that everyone under age 30 will need
to self-fund their own retirement. In order to be
financially prepared, it is important they start
investing young and avoid financial pitfalls that
plague many of their peers. This requires they learn
the basic financial education skills so they are
financially prepared.
To be financially prepared for retirements today's
youth will need to have over a million dollars to be
fully financially prepared for a self-funded
retirement. After calculating the long-term
inflation rate, a young adult today will need over a
million dollars in order to retire on an annual
income of around $35,000 (today's dollars, adjusted
for inflation and salary increases). This is
assuming that they live to be ninety years old.
However, with the improvements in medicine, many
experts feel we will live beyond that mark, so just
planning to live to 90 may not be enough. And
$35,000 annual income per year is not a lot of money
to enjoy the golden years.
What's the answer? One answer may be a simple
investment of $100 per month starting at age 18. If
that investment earns a return similar to the S&P
500 average over the past 82 years, they would have
over a million dollars many years before they reach
retirement age.
Have fun and retire young by following these simple
steps.
1) Invest Young -There are powerful financial forces
on your side when you start investing young. One of
the most beneficial to young investors is
compounding interest.
Compounding interest occurs when you invest money
and earn a return on what you invest. The amount
your investment returns then starts to earn you
money. This forms a snowball affect that will make
your money grow bigger the longer you are invested.
To break it down, you're making money off the
interest your investment already paid you. Then you
continue to make money off the interest that you
made each year. That means your investments can grow
faster and larger each year.
2) Consistent, young, investment plan. Investing on
a consistent basis may allow you to generate
long-term gains over time. Most people agree, they
will invest more consistently if the investment they
choose is simple and something they understand; and
consistency over time leads to financial security.
Follow a consistent investment plan immediately;
then as your investment knowledge grows you can add
other forms of potential higher-return investments.
3) Use investment vehicles that offer tax benefits
-Roth IRA may allow you to withdraw money at
retirement tax-free. Most are unaware that forty
percent of a persons income goes to pay taxes. You
will keep more of the money you earn by investing in
an IRA.
Diversification - For young investors the stock
market can be a great place to start investing. As
your account size grows you could take some of that
money and move it into real estate or business
ventures.
Diversification lowers risk. For example, if you
have 'all' your money invested in the stock market
when prices are declining then 'all' your money may
decline in value as well. Now if you diversify your
holdings and had a portion of your money invested in
the stock market, some in the real estate market and
some in businesses you might avoid a big loss.
The thought of funding one's own retirement makes
some people nervous but if people start young and
stay consistent, today's generation will be able to
afford the lifestyle they want now and through out
their life. |
Discover the first steps to providing your child
a practical financial education by getting your free
video's and books at
http://www.FreeBy30.com. These lessons
were developed by young America's success coach and
author of 'Financially Free by 30', Vince Shorb.
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It's choice,
not chance,
that determines
your destiny.
Jean Nidetch |
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