Do I need to be planning for retirement already? If you’re a college student or graduate looking ahead toward building your successful career, retirement may be the last thing on your mind. But this is actually an ideal time to start saving for retirement. Why?

Quite simply, your money has the potential to grow exponentially over time, thanks to compound interest. Here’s an example that shows how waiting until later to invest may put you at a disadvantage: 

Two investors — one who started saving for retirement at 25 years old and one who waited until they were 35 — each put away $100 a month, at a 5% annual compound rate of return. The investor who began saving at 25 had $162,000 in their account at age 65. The investor who started saving at 35 had only $89,000. By starting 10 years sooner, the first investor gained a $73,000 advantage by contributing just $12,000 more to their account.

In addition to harnessing the power of time (and compound interest), you may find that this is a good time to start saving for retirement because you have fewer financial obligations than you’re likely to have in the future. Trying to get into a retirement savings routine as you are taking on a home mortgage or raising a family may be difficult. Adopt that savings routine now and it will become second nature to you — a healthy habit that serves you throughout your life.

How to Start Saving for Retirement

 
Here are some tips to help you start investing for your retirement:
 
Set your savings goal. The key to saving for any short- or long-term goal is making sure you have a solid plan to follow. Look at your budget, understand how much money you have coming and going, think about when you’d like to retire, and set a goal for your retirement savings. This PNC retirement calculator may help you determine how much you should be putting away each month to reach your goal.
 
Build in structure. Get into a disciplined mindset where you contribute consistently. Retirement accounts typically offer you the opportunity to “set it and forget it” — in other words, to have a designated amount of money automatically moved from your paycheck to your retirement account so that you aren’t tempted to skip a contribution and spend that money on something else. 
 
Sign up at work for a 401(k). Many businesses offer employees a 401(k) plan, which allows you to save money tax-free until you withdraw it at retirement. You specify the amount you want to contribute, and those funds go directly from your paycheck into your 401(k) account before that income is taxed. This enables more of your money to earn compound interest over the years. You pay the taxes on any withdrawals you make at retirement.
 
Another potential benefit of a 401(k) is that some employers make matching contributions up to a certain percentage of their employee’s salary. (According to Investopedia, the average employer match is 4.3%.2 ) Try to take full advantage of this “free money” by contributing at least as much as your employer will match, as long as it doesn’t overburden your budget. 
 
Consider an Individual Retirement Account (IRA). If your employer does not offer a 401(k) plan, or if you are contributing the maximum percentage to earn the 401(k) match and would like to diversify your investments, consider opening either a traditional or Roth IRA through a financial institution (these accounts are not tied to your employer in any way). The features of these accounts differ from each other — for example, Roth contributions are taxed as regular income, while contributions to a traditional IRA are taxed-deferred until withdrawal, similar to a 401(k) plan. Learn more about IRAs to determine whether they may be a good option for your retirement planning.
 
Explore your investment options. Retirement accounts provide you with the opportunity to choose where you would like your money to be invested: in stocks, bonds, mutual funds, certificates of deposit, etc. Take some time to educate yourself on concepts such as risk tolerance and diversification, and use the tools made available to you through the financial institution that holds your account to help you determine which option(s) to choose. 
 
If you find yourself uncertain about the best choice for you and your specific circumstances, consider meeting with a licensed financial advisor for a consultation. In addition to answering your questions, they may bring up options for investing and saving that you hadn’t even considered.