By Allison Spence
According to Franklin Templeton Investments' survey of investors, 60% of Millennial women would delay retirement if they were unable to retire as planned due to insufficient funds. On average, working Americans expect to retire at age 66, reports U.S. News, but the actual average retirement age has hovered around 60 for the past decade or so. So why are young adults expecting to retire so late, and willing to relay that retirement even more, if there's something Millennials can do about it now? Here are four reasons why it's important for Millennial women to begin investing early:
1. Time is on your side.
Millennial women range from ages 22 to 37. If you're on the lower end of the Millennial spectrum, time is really on your side, and if you're on the upper end, you still have time and there's no better time than the present. Time allows you to do a handful of things- take risks, earn compound interest, and learn the value of patience for your long-term investments.
Allow for Riskier Investing
Most investors are saving for retirement, which can seem like a long way into the future for a young woman. Investors who have time to recover if something goes wrong with an investment, have the opportunity to make riskier moves with their investment portfolios. Those who begin to invest late in life are often inherently more cautious with how they invest their money.
Take Advantage of Compound Interest
Compound interest growth occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods, which differs from linear growth, where only the principal earns interest each period. Which means over time you'll begin to see your investment really add up.
For example, a single $10,000 investment at age 22 would grow to over $70,000 by the time the investor was 62 years old (based on a 5% interest rate). That same $10,000 investment made at age 30 would yield about $43,000 by age 60, and made at age 40 would yield only $26,000. The longer money is put to work, the more wealth it can generate in the future.
Give Your Long-Term Investments Patience
Women are known to be better investors because of their patience. Long-term investments are just that-- long. Now's the time to sit back and let those illiquid investments work their magic. Don't sit on pins and needles waiting to see how your investment is doing every day. Checking your investment performance every once in a while is ok; in fact it's encouraged, and that patience will make you a less emotional, stronger investor.
2. You learn with experience.
Millennial women are young and tech savvy, meaning you can learn while doing. Chances are, you've already searched the internet for the best ways to invest and how to diversify your portfolio. Use this time to take advantage of technology to learn about various asset classes and refine your investment philosophy and strategy. There's time to take a few risks and develop a portfolio that can help you retire on time.
3. Your spending habits will improve.
By investing early, you're teaching yourself how to be financially responsible. Budgeting and putting aside money for investing allows you to resist the urge to impulse buy, as those purchases usually don't align with budgets. In fact, 54% of U.S. shoppers have admitted to spending $100 or more on an impulse purchase, and 52% of Millennials were more likely to make impulse purchases than any other generation. If you stick true to your budget and invest responsibly, chances are you won't fall into either of those statistics.
4. Women Live Longer
Before retiring, it's important to make sure you'll have enough money for the rest of your life. The average American's lifespan has continued to increase, and according to United Nations data, on average women live 4.5 years longer than men. By starting to invest now, you can ensure you'll have enough money for retirement when you're ready.
Retiring late or not at all can be avoided with a little budgeting and investing practice. Take advantage of the time you have available, take smart risks, enjoy compounded interest, be patient, learn from experience and spend wisely, and your investment portfolio will take you into a long and comfortable environment.