How to Retire: Start Young

David K. Donovan In recent years, the average actual retirement age of Americans has seen a steady rise. According to the Gallup Group, between 2002 and 2014, the average age of retirement went from 59 to 62. While we can speculate on the reasoning behind this increase in the average retirement age, one may presume that this in part is due to growing financial demands, inadequate planning for comfortable retirement, the realization of a longer life expectancy, or perhaps an enjoyment of one’s vocation. However, if we focus in on the idea that these retirees are not financially capable of retiring until these later dates, then we must turn our attention to the proper way to prepare for retirement at a reasonable age.

For those who are entering adulthood now, you have a world of opportunities in front of you and a whole life ahead of you. Perhaps thinking about retirement seems ridiculous at this point in your life, however, planning and getting into sound financial habits now will put you in a much stronger position for when you are ready to transition out of your vocation. The following suggestions are tips targeted at those just starting out in their careers, but they can apply to anyone interested in upping their retirement planning.

Education : If you are in college and have the opportunity to take a class on personal finance or portfolio management. Do it. However, this is by no means the only way to educate yourself on the topic of personal finance and on financial markets. Do your research to get a foundational understanding of how things work. Take time to learn about tax advantaged savings accounts, starting your IRA or finding other free resources that will aid in your ability to manage your money. Find tools that work for your particular situation. Be very proactive in this part of the process.

Practice, Practice, Practice, Habit : Start the process of budgeting. Whether you create a spreadsheet or use an app like Mint or Level Money, start tracking what and how you spend. By practicing this type of tracking, it will eventually become a habit. And most importantly, you will have gathered enough data to understand your spending and come up with strategies to get it in line with your financial objectives.

Save : This is a practice worth developing as early as possible. By designating retirement money early, time is working in your favor through the power of compounding returns. By investing money for your retirement early, you are increasing your potential for growth at an incredible rate.

Know What You Want to Buy : For those just starting out in the world of portfolio management and personal finance, the process can seem a little bit intimidating. However, it doesn’t have to be. Instead of trying to figure out the next big thing in the world of stocks, start by making a list of companies that are tried and true. These are the companies that you should be looking to invest in first, think of them as building blocks for your portfolio. And once you have that list ready to go, you can start to purchase stocks in those companies when the time is right. These are the stocks that you want to hold onto for a long time, so really examine that list after market corrections.

Take a Risk: Although it’s generally best to be a bit conservative in how you invest, for new young investors, now is the time to take a chance. Because you are still early in your investment career and presumably free of many of the responsibilities that come later in life, you are in the perfect position to make riskier investments. This doesn’t mean you should go wild, not do research or just invest on a whim. However, it does mean that you can consider riskier investments, perhaps consider small caps and foreign equities. Now is the time to do it!

While these five tips are meant to be applied to new young investors, just starting out, it’s important to keep in mind that some of these may not work for your specific situation. This is why it’s necessary to remember that you should do research and take time to figure out what works for you. However, these suggestions do touch on major themes related to preparing for retirement.