4 Retirement Myths Keeping Young Professionals From Building Wealth
Retirement may feel like a lifetime away when you're juggling rent, student loans and trying to build a career. That distance makes it easy to believe you'll have plenty of time to start saving later.
But financial experts say those common assumptions may be some of the most expensive mistakes young professionals can make. Here's which retirement myths deserve to be retired for good.
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Myth 1: I'll Start Saving When I Make More Money
Young professionals often assume retirement investing only makes sense once they earn a comfortable salary. However, according to Josh Katz, a certified public accountant (CPA) and founder of Universal Tax Professionals, the sentence, “'I'll start saving when I make more money” is "the single most expensive sentence in personal finance."
He takes the analogy further, suggesting that “waiting until you feel wealthy enough to invest is like waiting until you're in shape to go to the gym."
According to Michael Schramm, certified financial analyst (CFA) and founder of Emotional Finance, while “financial constraint is a legitimate barrier for younger generations,” it’s important for them to understand “that something is so much better than nothing."
Myth 2: You Need Lots of Money Before Investing
The “make more money” myth also can spiral into an “I need more money” myth, according to Taylor Kovar, founder and CEO of 11 Financial.
"In many cases, starting small, even just $5 here and there, tends to matter more than trying to time things perfectly or waiting until you feel like an expert,” he said.
Katz urged young adults to worry less about hitting targets like investing 10% or 15% of their income in the early days and just start somewhere. He said, "Start at any amount. Fifty dollars a month with a decade of runway beats a perfect plan you launch in five years."
Myth 3: Waiting a Few Years Won't Really Matter
Katz explained that young people have the advantage of time, so if they wait to invest, they miss out on potential compounding.
“A dollar invested at 25 does dramatically more work than a dollar invested at 45, and no amount of catching up later fully replicates that,” he explained. One thing people cannot buy back is time.
Schramm broke down a scenario of a 25-year-old who puts away $200 a month at a 7% annual return: “They'd have roughly $525,000 by 65. Start at 35, and it's roughly $244,000."
Myth 4: Retirement Has To Come Before Every Other Financial Goal
Retirement doesn't have to compete with emergency savings or debt repayment. Katz clarified that young adults don’t have to choose, they just have to "sequence it." He recommended the following saving/investing order:
Small emergency fund
Employer 401(k) match
High-interest debt
Build emergency savings
Increase retirement contributions
The only thing that really eats away at future goals is carrying high-interest debt. So, Kovar suggested young adults “chip away at debt while still contributing something toward retirement, even if it's a smaller amount for a while.” What matters is that you build and maintain a savings habit.
Instead: Build Wealth by Automating and Staying Consistent
Despite their different perspectives, all three experts ultimately recommended automating contributions, staying invested and letting time do the heavy lifting.
Katz added that “boring always wins... The person who quietly automated a modest contribution into a low-cost index fund at 24 and never touched it will beat almost everyone who was busy being sophisticated."
And while young adults have the best advantage, Schramm reassured, "If you feel behind, there's still time to catch up.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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