Money secret No. 30: What about retirement?

It’s important to think about retirement, and the sooner you do it and plan for it, the less you’ll worry about it in the long run.

At 25, retirement still seems really far away. But it’s closer than it seems. Right now is truly the perfect time to take care of your future self, first and foremost because of compound interest. As we’ve covered, the time factor plays a major role in the final result. The sooner you start, the better. Second, you probably have fewer obligations in your 20s. You’re probably not married, have no kids, and don’t have to take care of any dependents, meaning you have full control over your time and money.

There are three pillars to retirement. They’re basically the three buttons you can push to build income in retirement:

1.    State pension: If you are gainfully employed, you automatically pay a small amount toward your pension every month. These contributions are associated with the expectation that the government will take care of you upon retirement, and you hope to receive a certain amount during retirement. To get an idea of what to expect in retirement based on your past contributions, take a look at your annual pension statement. The main problem with state pensions is that it’s increasingly unlikely that we will receive the promised payments when we retire. The reason why is that there are fewer people paying into the system than there are people drawing on retirement. So, the government will probably not have enough money to pay the full amount out to us.

2.    Corporate retirement plan: This pillar consists of all the programs your company offers. One example is those plans which you make pre-tax contributions out of your income for retirement. This pillar is not so well developed in Germany. We recommend that you take a good look at these programs and ensure that the tax benefits outweigh the costs of these such programs.

3.    Your own investments: This third pillar is about what you personally can do. Have you automated your saving and investing? Consistently saving and investing in a broadly diversified portfolio of stocks and bonds is a good way to build wealth for retirement.

Money secret No. 30: Having a plan for retirement now will give you more peace of mind later. And remember, the sooner you start, the more time you have to multiply your investment earnings over the course of time. So why wait any longer? Get pumped and get started!