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    Entrepreneur News

    Like Warren Buffett, Young Investors Can Side-Step Retirement Worries by Starting Early

    DunniBy DunniMarch 22, 20246 Mins Read
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    One-on-one with Warren Buffett
    Source: Fortune Live Media/Flickr
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    As billionaire investor Warren Buffett has recommended innumerable times, compounding wealth is the key to accumulation. 

    One-on-one with Warren Buffett
    Source: Fortune Live Media/Flickr

    So, young workers can rewrite their retirement fate by mindfully saving right from the early days of their careers. It will save them many woes in later years, and the initiative has many benefits. 

    Pension Versus 401K  

    Unlike the fixed withdrawals from workers’ salary accounts, which are the bedrock of pension savings, the 401K leaves the workers with the choice of how much to save. 

    Eggs with text printed on them
    Source: Andrey Popov/NIRS

    So, a worker can decide to start saving big early, and another may choose to spend all of their earnings. That is the almost indifferent liberty that the 401K affords. 

    Government’s Concern Over Post-Retirement Poverty

    According to a February 28 report by the Health, Education, Labor, and Pensions Committee of the US Senate, more seniors are living in poverty than ever recorded. 

    Senior citizen out in the cold
    Source: Paulien Osse/Flickr

    The report states that approximately half of Americans close to retirement age have no savings to fund their livelihood after halting involvement in active employment. 

    A Retirement Crisis Is Upon Us

    Interestingly, Americans know the bleak realities of retirement for the average senior citizen. In a poll by the National Institute on Retirement Security, 79% of Americans admit the existence of a retirement crisis. 

    A senior couple sitting side-by-side
    Source: MCAH/X

    That figure is up from the institute’s 67% in 2020. Likewise, 55% of Americans are worried that they are likely to find themselves in financial trouble after retirement. 

    Early Is Best to Compound the Interest on Savings

    However, during the February 28 Senate hearing, financial experts testifying to the report’s credibility have proffered some fixes for the retirement crisis. According to them, the tips will work best for young workers as they can leverage the fact that they still have many years ahead. 

    Youths working at a tech hub
    Source: ILO Asia-Pacific/Flickr

    According to experts, compound interest is the key to financial freedom in retirement. 

    Go Long With Ease, Or Sprint and Gasp Heavily  

    Albert Einstein is acclaimed to have called compound interest “the most powerful force in the universe.” Experts suggest that with more time at hand, young investors can invest less aggressively and still get tangible results in the long run. 

    Albert Einstein in his Office
    Source: Mara Vishniac Kohn/Flickr

    On the contrary, aged investors may have to scrip, save, and invest all their life savings to achieve similar results. 

    Seeking Expert Opinion On Retirement Security  

    Compound interest can work wonders with meager resources when it has time as a surplus complement. Dan Doonan, the executive director at the National Institute on Retirement Security, was present at the Senate hearing. 

    Clipart explaining the concept of compound interest
    Source: Universal Finance Organization UWaterloo/Medium

    He said, “Starting earlier obviously makes the math work better.” So, this implies that compound interest has the backing of credible experts as a way out of penury in retirement. 

    Informing Youths About the Benefits of Saving Early    

    So far, there have been multiple proposals from federal Senators on how to help retirees have enough funds to fall back on during their senior years. In other instances, the lawmakers are trying to ‘catch them young’ with bills encouraging young folks to start saving early.

    Dropping quarters into a piggy bank
    Source: TMI Hari ini/X

    For example, the Helping Young Americans Save for Retirement Act has reduced the participatory age for workplace retirement schemes from 21 to 18.

    Babies Can Have Retirement Savings 

    Likewise, a team of Democrat lawmakers sponsored the 401Kids Savings Act. The bill makes it legal for parents to open a savings account for their newborn child. In addition, the federal government will provide support for such children, particularly those from low-income and moderate-income families.

    Poster for the 401Kids Savings Act
    Source: Bob Casey/Instagram

    By age 18, the minor will be allowed access to their savings to fund their education, launch a startup, or purchase a home.

    Savings On Auto Pilot  

    Senator Bob Casey of Pennsylvania was the prime mover of the 401Kids Saving Act. He suggests that starting a savings account at birth is like putting a retirement fund on autopilot and allowing market forces to compound the interest.

    Donor Dylan painting with one of his daughters
    Source: Adam Fagen/Flickr

    In a statement, Casey said, “Starting to save at birth also means families can put the market to work for them, leading to compound savings and greater assets later in life.”

    Better Late, But Best Early 

    In 2023, research by the Aspen Institute discovered that a savings account initiated at birth has the potential to accumulate up to $473,000 at retirement. This will give the individual less financial strain compared to someone initiating their retirement savings at 32 or after college.

    Chart explaining the workings of compound interest
    Source: wabweya faluku/X

    However, experts suggest that, where possible, multiple solutions should be deployed to curb the retirement crisis.

    How About Auto-enrolling Young Workers for Savings  

    It may be unconstitutional to force parents into open savings accounts for their babies. However, the president of Nationwide Retirement Solutions, Eric Stevenson, proposed an auto-enrollment for everyone at age 21. 

    Stevenson addressing the Senate
    Source: Eric Stevenson/LinkedIn

     All such initiatives would improve the livelihood of Americans at retirement and have a ripple effect on the national economy and GDP. 

    Don’t Wait for the Herd Syndrome  

    However, despite lawmakers’ efforts to pass bills that would encourage young Americans to save, the goal can still be achieved without the laws. Those legislations are intended to merely motivate and provide a conducive environment for young savers.

    A worker inspecting bananas meant for export
    Source: ILO Asia Pacific/Flickr

    Pending the passage of these bills, young workers can start an individual retirement account, even without any federal law prompting them to do so.  

    Roth IRA to the Rescue  

    Retirement fund experts are also trying to sensitize savers about the benefits of Roth IRAs, which are individual retirement accounts that can be funded with tax-free dollars.

    Dollar notes lying around a block of text
    Source: Dr. Hector Vasquez/Medium

    However, the Roth IRA puts a cap on how much workers can contribute to the account. Investors less than 50 years old can contribute no more than $7,000. Likewise, relatives and guardians of a young person can fund the account on their behalf.

    Start Saving Today!    

    The chief benefit of a Roth IRA is that the account holder can withdraw the funds tax-free and without any accruing penalties. However, five years after the first deposit is made, savers are eligible to withdraw their funds. However, the crowning clause states that the saver needs to be 59.5 years old to access the savings.

    Workers running quality checks on syringes
    Source: ILO Asia-Pacific/Flickr

    Therefore, there is no opposition to the idea that early savings can help address the national retirement crisis.

    401k Retirement plan Savings Warren Buffett
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    Previous ArticleWith a Simple Change in Mindset, Vivian Tu Went from Penury to Millions
    Next Article Helpful Gleanings From the Financial Perception of a Gen Z Personal Finance Reporter 

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