A report from Charles Schwab (NYSE:SCHW) last week indicated that only 67% of singles are saving for retirement right now, versus about 85% for married couples (across all age groups). Separately, a depressing report from PNC Financial Services (NYSE:PNC) earlier this month reported that a mere 18% of 20- to 29-year-olds “whose adult lives began amid the 2008 Great Recession” believe they will retire comfortably.
In short, if you’re single and you’re young, you probably aren’t even thinking about retirement. And if you are, you’re so pessimistic about it that you probably don’t bother to invest.
If this sounds like someone you know (or are related to), then keep in mind that a little goes a long way in retirement planning. Consider these three ways to retire with $1 million:
- You can invest $2,700 per year for 60 years at a 5% rate of return annually.
- You can invest $14,500 per year for 30 years at a 5% rate of return annually.
- You can invest $44,500 per year for 15 years at a 5% rate of return annually.
Not only is the first scenario much more realistic and digestible for a family budget at a mere $225 per month, but the actual money you’ve paid in is dramatically less. In the first scenario, the total capital paid into that $1 million nest egg is a mere $162,000. For the second it’s $435,000, and for the third it’s $667,500.
In short, compound interest from early investing can not only make you money — but save you money paid into your 401k or IRA, too. It’s a win-win.
So what are a few investments for today’s young bachelors and bachelorettes to mull for that monthly investment of $225? Here are three to consider:
Vanguard Target Retirement 2050 Fund (VFIFX)
So-called “target-date” retirement funds are great options for young investors because the risk level of your investments is automatically adjusted for you over time — without the need for younger investors to move money around on their own or perform exhaustive research. The Vanguard Target Retirement 2050 Fund (MUTF:VFIFX) is perfect for 20-somethings looking 40 years or more until retirement because it is aggressive at first and gradually becomes conservative as the retirement “target” of 2050 approaches.
The big downside, of course, is that if you plan on retiring early or late, this cookie-cutter approach might not suit you. You have to be comfortable with the “target” of this fund when you buy in, since that ultimate goal drives all the decisions.
Also, the VFIFX mutual fund is a “fund of funds,” meaning it actually is comprised of other mutual funds and not individual stocks or bonds. There is a risk of redundancy this way — or a “too many cooks in the kitchen” approach — because there are many managers for these disparate investments. Then again, if all those folks are doing a great job, it might be in your best interest to share in the success of a few different strategies.
The fund has a minimum buy-in of $1,000, which is the lowest in the business. Read more about Vanguard’s fund here.