You don’t want to rely on Social Security to fund your retirement.
Social Security was created as a retirement supplement which means it was designed to be in addition to your retirement savings. Despite all of the doom and gloom regarding Social Security, the program isn’t going away. However, recipients should not expect Social Security to keep up with inflation or to provide the majority of their retirement income.
You don’t want to live with your children just because you can’t afford to live on your own.
Your house, your rules. What happens when it becomes their house, their rules? Not to say that it can’t be a positive experience to live with your children as you get older, but family conflicts often arise when generations of a family are forced to live under the same roof.
Saving in a tax-deferred account reduces your income taxes.
They say two things in life are guaranteed…death and taxes. I haven’t heard of a solution to the first, but what if you could minimize the latter? You actually can, and the government encourages it! For every dollar you put into your retirement account today, you are saving the income taxes the government would have taken. Then you make interest on those tax dollars. And to top it off, you are very likely to be in a lower tax bracket when you retire, which means, if managed properly, you’ll potentially pay even less in income taxes when you take the money out!
Many consider compounding interest a wonder of the world. Did you know that if you were to invest $1000 a year for 11 years starting at age 20 and then stop and never save again, you would have approximately $168,514 by the age of 65? This figure is assuming for a very reasonable 7% yearly return. Not bad for only investing a total of $11,000. But what if you started later and invested for a greater number of years? If you were to invest $1000 a year starting at age 30 for the next 35 years at the same 7% yearly return, you would end up with approximately $147,913. I guess the old adage is true…time does equal money.
Because you want to be financially independent.
Since retirees are, in many cases, living more years in retirement than they actually spent working, tomorrow’s retirees want to have freedom to continue working into retirement. That said, they don’t want just any job. They want a job they are passionate about and allows them to work as much or as often as they desire. To accomplish this they will need financial independence, which means they have already saved enough money to not worry about the dollar amount on their paycheck. The amount needed to make this possible will depend on each individual’s lifestyle, but the longer one waits to start saving for retirement, the more expensive it will be to live the second half of life on their own terms.