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The Investment Power of Youth

Have fun and retire young is the mantra of many high school and college students today. Unfortunately, only a minority of them will be able live their dream life.

Social Security and pensions probably won't be around when your teenager reaches retirement age. In the last ten years we've experienced a large reduction in pension plans offered to employees. Employers are replacing pension plans with contributory retirement programs. Unfortunately, according to a report of the National Association of State Boards of Education, "most workers with access to these contributory programs are not participating sufficiently to allow them to retire in their sixties without suffering a great decrease in their standard of living."

This may mean that everyone under age 30 will need to self-fund their own retirement. In order to be financially prepared, it is important they start investing young and avoid financial pitfalls that plague many of their peers. This requires they learn the basic financial education skills so they are financially prepared.

To be financially prepared for retirements today's youth will need to have over a million dollars to be fully financially prepared for a self-funded retirement. After calculating the long-term inflation rate, a young adult today will need over a million dollars in order to retire on an annual income of around $35,000 (today's dollars, adjusted for inflation and salary increases). This is assuming they live to be 90 years old. However, with the improvements in medicine, many experts feel we will live beyond that mark, so just planning to live to 90 may not be enough. And $35,000 annual income per year is not a lot of money to enjoy the golden years.

What's the answer? One answer may be a simple investment of $100 per month starting at age 18. If that investment earns a return similar to the S&P 500 average over the past 82 years, they would have over a million dollars many years before they reach retirement age.

Have fun and retire young by following these simple steps.

1) Invest Young -There are powerful financial forces on your side when you start investing young. One of the most beneficial to young investors is compounding interest.

Compounding interest occurs when you invest money and earn a return on what you invest. The amount your investment returns then starts to earn you money. This forms a snowball affect that will make your money grow bigger the longer you are invested.

To break it down, you're making money off the interest your investment already paid you. Then you continue to make money off the interest that you made each year. That means your investments can grow faster and larger each year.

2) Consistent, young, investment plan. Investing on a consistent basis may allow you to generate long-term gains over time. For most, simplicity equals consistency; and consistency over time leads to financial security. Follow a consistent investment plan immediately; then as your investment knowledge grows you can add other forms of potential higher-return investments.

3) Use investment vehicles that offer tax benefits -Roth IRA may allow you to withdraw money at retirement tax-free. Most are unaware that forty percent of a persons income goes to pay taxes. You will keep more of the money you earn by investing in an IRA.

Diversification - For young investors the stock market can be a great place to start investing. As your account size grows you could take some of that money and move it into real estate or business ventures.

Diversification lowers risk. For example, if you have 'all' your money invested in the stock market when prices are declining then 'all' your money may decline in value as well. Now if you diversify your holdings and had a portion of your money invested in the stock market, some in the real estate market and some in businesses you might avoid a big loss.

The thought of funding one's own retirement makes some people nervous but if people start young and stay consistent, today's generation will be able to afford the lifestyle they want now and through out their life.

Article Source: http://www.newagelivingarticles.com

Protect your child by giving them the practical financial lessons they need to make it in the real world. Visit www.FreeBy30.com to get the free video lessons developed by Vince Shorb, creator of the 'Financially Free by 30 multi-media financial education course for young adults.

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