Put Off Saving for Retirement
Here's an unpopular idea. Everybody knows that you should start saving for retirement as early as possible, because everybody's seen the calculation where you put aside a few dollars every month starting at age 20 and with compound interest have a huge amount by the time you're 65. (See also: Don't Despair Over Small Retirement Savings)
There are three big problems with this scenario.
The first is that, right now anyway, it's impossible to earn any interest. That's not generally true, but it is true that you can't assume that any particular rate of return is going to be possible. (If only I were as rich as I'd imagined I might be when I did these sorts of calculations in the early 1980s, when long-term government bonds were paying 14%!)
The second is that there are certain phases of your life when you really need the money, and one of them is when you're first starting out. When you're trying to set up housekeeping for the first time — buying pots and dishes and furniture (not to mention paying off your student loans) — a few hundred dollars is going to make a much bigger difference to your standard of living than it will make when you're retired (even with compound interest).
The third is that people's incomes are low when they're young. Even with compounding, the ultimate contribution of those small, early deposits is insignificant, compared to the amount of money you can sock away in the last few years of your career.
The real reason to start saving for retirement early is to establish the habit of saving. So, let me be clear — I'm not recommended that you put off saving. I'm just recommending that you put off saving for retirement. By all means, start saving early. Save for an emergency fund. Save for down payments on a house and a car. Save for a vacation. Save for a luxury item you really, really want. Develop that habit of saving. Then, in a few years, when your income is a little higher and your household a bit better established, go ahead and start saving for retirement.
Your retirement will be just as secure, and your first few years will be a lot more comfortable.
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