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Course: Financial Literacy > Unit 7
Lesson 3: Planning for retirementWhy plan for retirement
Planning for retirement is important because it helps you save enough money so you can be comfortable and enjoy life when you're older and no longer working. By starting to save early, you make sure you're ready for the future and can take care of yourself and your needs. Created by Sal Khan.
Want to join the conversation?
- what is the best age to start saving for retirement?(1 vote)
- I didn't start until I was 30, and I retired at 67. I have enough.(3 votes)
Video transcript
- So let's think a little
bit about retirement. And I know some of y'all
who are younger, like, hey, I'm just trying to figure out
what to do with my own life. Why am I already thinking
about my life when I am in my 60s or 70s or even later? The first thing I'll tell you, life will go by faster than you suspect. I'm not at retirement yet,
but I'm about halfway. And that, that first
half went awfully fast. And, but the more importantly the earlier you start thinking about it, the more likely you're
going to be in a situation that's a good situation
when you get to retirement. So the whole principle is when you're in your 60s or 70s, you
might not wanna work. You might want to see
the world a little bit. You might wanna spend
more time with your family or you might not be in a position to work. Your health might start
going in certain ways. And so you want to have
a cushion to live off of. Now, one consideration is, is
that people are living longer and longer and longer,
which is a good thing. But in the old days when
the life expectancy was 65 or 70 and people retired
at 65, well then on average they only had to think about, well how am I gonna live for that? How am I gonna support
myself for those five years? But now folks are living
into their 80s, 90s and even beyond as healthcare gets better. And so now if, if you're fortunate your retirement might be decades it might be 20, 30 years or longer. Now that's a double-edged sword because healthcare is getting better but healthcare is also
very, very expensive. And so you need to think,
how do you pay for that? You might have to think
about things like inflation. Everything is getting
more expensive over time. Some of you might say, hey,
there's government programs there's government healthcare. You have things like Medicare, you have social security
that you're paying into, but you really don't know when you retire in 30, 40, 50, 60 years whether those programs
are going to be the same. And to what degree are
those programs able to actually help support you? So saving for retirement is
a very, very important thing. But some of the core principles that we talk about saving generally apply. So you should try to
live below your means, spend less than you bring in. You have that savings. Now, some of that savings
could be for things that are in the short term. It could be a safety net in case you lose your
job, in case you fall ill, in case you have some unforeseen expenses. It could also be for buying
a house or buying a car. And it could also be for investment. And if you start saving
and you invest now, one, if that investment's not
something that you want to touch for 30, 40, 50 years,
you could probably deal with a little bit of ups
and downs, what's often called volatility, a
little bit of that risk. And so if you invest it over
many, many years, whether it's in something a little
bit riskier like stocks or something safer like
bonds, that interest that compounds year after
year, it will become a significant addition to
whatever you directly save over the coming decades. I encourage you to watch
videos on Khan Academy about the power of compounding
interest and things like that. But it is a lot. If you save a hundred dollars
when you're in your twenties and it compounds at four
or five, 6% per year that will be a lot more than
a hundred dollars when you get into your fifties, sixties and seventies. So start thinking about retirement. It's never too early. And you know, worst case
you think about retirement you start saving up for it. That money that you're saving
up can be used for many, many, many different purposes depending
on how you're saving it. You also have things
like retirement accounts like 401Ks and IRAs, which
we'll talk about later which allow you to save for retirement in a
very tax efficient way. So we'll talk about that in
more depth in other videos.