Saving for Retirement

By KSU Counseling Services Staff

It's never too early to start saving for retirement. So goes the conventional wisdom.

Starting Early

The usual reason for starting a retirement account as soon as possible is the "compound interest" over time, which essentially shows how the value of money grows over time as accumulated interest is re-invested with the rest of the principal. Over time, moneys invested in retirement funds grow exponentially. There are financial vehicles like individual retirement accounts (IRAs) and other types of accounts for retirement.

Earlier Retirement Age

The average age of retirement is 59, not the 70 or 80 that many people may imagine for themselves. Disabilities start affecting Americans disproportionately beginning aged 50 and older. MP Dunleavey of MSN Money notes: "Data from the Social Security Administration indicates that 63% of disability claims were filed by those 50 and over." Many may be forced to quit working well before the designated retirement age.

Even if you retire well into old age, the Social Security benefits are not projected to provide more than about a third or less of the pre-retirement wage income for workers.

Avoid Counting on Inheritance

Others are depending on the idea of inheritance. Various economists have suggested that such bequests may not be sizable, and only an estimated 1.6% of heirs are projected to get $100,000 or more. Inheritances are subject to taxation as well. Rarely are inheritances sufficient to finance retirement, much less an early one.

Retirement Fund Matches Available?

Matching retirement funds offered through employers should be fully funded. Currently, a majority of individuals do not take advantage of retirement matches because they do not want to save part of their earnings for retirement. A retirement match is part of a benefits package that a company offers and is worth a lot of money in the long run.

Protecting the Nest Egg

You need to protect your retirement account by not borrowing against it because that may involve high interest charges and fees paid to the federal government for taxes against withdrawals.