As soon as she graduated from college and began earning an income,Army 1st Lt. Emma Sparks-Hedman started saving for her retirement.
“It's nice to have money and to be able to do what you want with it,” the 24-year-old said.
With Social Security facing a strain and life expectancies growing longer,financial planners are stressing to young people the importance of saving for retirement early.
“The most powerful tool toward creating wealth is time,” said Ric Edelman,a financial planner who has an ABC radio show.
“The sooner you start,even if it's a small amount,you get a significant benefit,” said Bradford P. Campbell,assistant secretary of labor for the Employee Benefits Security Administration. “Even a small amount of money can make a big payoff later on.”
Campbell said one of the best ways to save for retirement is through employer-sponsored plans,which can provide tax breaks and “free money” through employer matching.
“Contribute to your employer-sponsored plan,at least as much as is necessary to get full matching,” Campbell said.
Sparks-Hedman,an information management officer for the Army's 3rd Infantry Regiment,has two options through her employer: a 20-year pension program that awards 50 percent of base pay for the rest of her life after 20 years of active duty and the federal government's Thrift Savings Program,which works like a 401(k) for government employees.
The Marietta,Ga.,native said she hasn't yet signed up for the Thrift Savings Program,but that she plans to do so soon. For now,she contributes the maximum amount possible to a Roth IRA and invests in mutual funds that she plans to save for retirement. Contributions to Roth IRA's are taxable,but money taken out at retirement is not taxed.
In the civilian world,Cathryn Wile,a 22-year-old financial management associate for Bank of America in Charlotte,N.C.,makes $55,000 per year and contributes 15 percent of her paycheck to a 401(k) plan. After one year of employment,Bank of America will match up to 5 percent.
“If your employer is offering you a 401(k) plan,get in it,” said Ken McDonnell,program director of the Employee Benefit Research Institute.
Wile said she is also looking into buying Bank of America stock,and possibly investing in other companies,as well.
McDonnell said that employers can provide information about their retirement plans and that they can set up a seminar with a representative to give an employee lecture on retirement plans.