Prioritize Retirement Savings: Start Saving Now to Provide for Your Future Self

With multiple competing financial obligations, such as the need to pay off student loans right after graduation, the idea of saving for retirement can fall low on the priority list. Additionally, it is difficult to start saving for an event that is decades away. However, starting to save sooner rather than later is absolutely critical to boosting your chances of a comfortable retirement in the future.

Even saving small amounts can make an enormous difference over the long term.

by Grace Kim, DVM

With multiple competing financial obligations, such as the need to pay off student loans right after graduation, the idea of saving for retirement can fall low on the priority list. Additionally, it is difficult to start saving for an event that is decades away. However, starting to save sooner rather than later is absolutely critical to boosting your chances of a comfortable retirement in the future.

As the veterinary profession is becoming more female dominated, it’s especially important that this profession advocate for basic financial literacy when it comes to retirement planning. This is because women, as a group, are still falling behind on retirement savings. Because of their longer life spans and lower lifetime earnings compared with those of men, there is no doubt that retirement savings should be high on the list of financial priorities. 

Why the sense of urgency? This is due to the magic of compound interest, which is often referred to as the eighth wonder of the world. Simple interest, where you earn the same amount of interest year after year based on your initial principal, grows your money at a steady rate. 

Compound interest, on the other hand, grows your money exponentially by allowing your interest to grow on interest. When you extend this over a long period of time, such as the decades that typically make up your working years, then the results can be astounding. Let’s use the example of starting with $100.

  • Principal: $100
  • Interest rate (annual): 5%
  • Value after 40 years with simple interest: $300
  • Value after 40 years with compound interest: $704

It’s never too late to start saving for retirement.

You can easily see that compound interest is the clear winner in growing your money. This is why financial planners are adamant about saving for retirement sooner rather than later. Even saving small amounts can make an enormous difference over the long term. 

Retirement accounts are specifically designed to make saving attractive by offering tax incentives. Most retirement accounts, such as a 401(k) or a traditional IRA, are funded with pretax money. This means that your contributions are not taxed, lowering your taxable income the year that you make your contributions. Additionally, there is no tax on the growth of your money in these accounts. You will be taxed on the back end, when it comes time to make withdrawals from your account. 

Roth IRA contributions are made post-tax. However, growth in the account and eventual withdrawals will not be taxed. Either way, you are still reaping tax benefits.

Another common recommendation is to take advantage of an employer match if one is offered. Your employer is agreeing to match a certain dollar amount or percentage that you contribute to your employer retirement account. Often referred to as “free money,” it’s a golden chance to truly accelerate your retirement savings.

It’s never too late to start saving for retirement. Rather than viewing this as another financial obligation, look at it as your chance to dream about your life in retirement. How can you save now in order to live out your retirement dreams? What are the options and choices that you are gifting to your future self? Make sure that you’re building yourself the financial ability to afford that future, starting today. 

Grace Kim, DVM, is the founder of Richer Life DVM, a website that helps fellow veterinarians improve their financial health and wellness.

 

Photo credits: ©iStock.com/kali9, ©iStock.com/lankogal

Advertisement

Close

Subscribe to NEWStat