Save and Invest

Money expert: The No. 1 mistake young people make when saving for retirement


The biggest mistake young people make when saving for retirement isn't choosing the wrong account or contributing less than the idealized 10 to 15%. It's having the mindset that they can't afford to save for the future at all, says Farnoosh Torabi, personal finance author and host of the "So Money" podcast.

It's the mentality of, "I'm not making enough. I'll invest when I make more money," or "I can't save for retirement right now, I've got student loans," Torabi tells CNBC Make It.

"I think that it's a mistake to not do even just a little bit," she says.

That's because when you're young, investing isn't just about the amount you're able to save. It's also about developing a routine that sticks. "It's that stage when you're getting into the habit of investing and really flexing that investing muscle," Torabi says.

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As you begin to earn more, you'll be able to save more and can gradually increase the amount you're putting away. Plus, starting early lets you take advantage of compound interest, which helps your wealth grow faster because in addition to earning returns on the money you invest, you also earn returns on those returns at the end of every compounding period, which could be daily, monthly, quarterly or annually.

Other experts agree that it's a mistake for young people to hold off on preparing for retirement. "The key to your financial freedom in the future is investing when you are young," Suze Orman, personal finance expert and host of the "Women and Money" podcast, tells CNBC Make It.

"I would much rather see you invest a specific amount of money when you are young, a lesser amount of money, than waiting and have to invest five or six times [as much] when you are older," she says.

As Orman points out, the key to starting a retirement fund early isn't how much money you're able to put in, it's how much time you're able to give the account to grow.

Here's another way of looking at it: Failing to invest is like letting money fall out of your wallet every day, says Sallie Krawcheck, Ellevest co-founder and CEO.

Just do the damn thing.
Sallie Krawcheck
CEO of Ellevest

"Just do the damn thing," she tells CNBC Make It. "There's a conception out there: Oh, I have to have $100,000 to invest or $50,000 or $10,000. Just start where you are."

If the advice that prescribes putting away between 10 and 15% of your income feels daunting, start with an amount you feel comfortable with. "What if you do 2%? What if you do $50 a week? Could you do something?" Torabi says.

If you save $10 a day, which is about $300 a month, over 40 years and earn a 4% rate of return, you'll end up with around $360,000. If the market does well and you earn an 8% rate of return, you'll have around $1 million.

"It's a lot more than you would imagine," Torabi says. "$10 a day — all working professionals could do that."

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