Students should begin saving for retirement

“Young, Wild and Free” is an expression some college-aged students like to adopt as a motto during college life. Sadly, that motto ends when the word “retirement” becomes the new slogan for a working college graduate.

Most college students are not concerned with retirement because they have not entered into the real world with a real job yet. But college students should know the earlier they start saving for retirement, the more money there will be in the bank 50 years from now.

College students have no idea how much money they will need when they retire. The lack of knowledge and the overt need to be ambitious seem to be keeping the saving habits of college students (Millennials or Generation Y) behind versus the Baby Boomers and Generation X saving habits. According to a 2010 report released by Hewitt Associates, 50 percent of people aged 18 to 25 are eligible employees who do not take advantage of an employer-sponsored savings plan. This statistic is an indicator of many predictions as to why eligible, young employees are not using the benefits of investing in a retirement fund like a 401(k) or a Roth IRA. The burden of student loans could be an indicator as to why college students and college graduates aren’t contributing to a retirement plan. According to a May 2011 Pew Research Center report, students graduating from a four-year college will start with an average debt loan of $23,000. Not many 22 year-old professionals want to think about turning 67-years-old and living off a small sum of Social Security and a small amount of cash saved somewhere, especially since interest rates on student loans will follow until it is all repaid.

After employment, there are a few ways to get started on investment plans. According to Hewitt Associates, those in Generation X contribute 6.3 percent of their pre-tax salary to an employer-sponsored savings plan, while those in Generation Y  contribute only 5.3 percent. When employees contribute 6 percent or more, most employer-sponsored savings plans will match 3 percent, giving them 50 percent more return on the investment. Investopedia.com recommends that when people receive a raise and live comfortably within their means, they should not think of the extra cash as disposable income. Instead, they should invest it in their personal financial future by contributing to their retirement fund. The time value of money is the best weapon one has to prepare and save for the future.

Another option for saving is a Roth IRA account. The fund grows tax-free in the bank and withdrawals are not taxable. One can choose to invest at a local bank, brokerage house or a mutual fund. A Roth IRA is not an employer-sponsored savings plan, but a plan where people can contribute to it at their own pace with a maximum of $5,000 a year. If invested in a good mutual growth fund earning 10 percent a year, it will be worth $586,954 in 50 years. Students should take advantage of long-term investment plans and contribute to it often because, over time, these stocks could grow faster than normal deposits into a savings account or bonds.