You should always be skeptical of any advertisement or proposal that encourages you to “act now” or “call today.” When you hear these things, you should know that the high-pressure sales tactics can coerce you into something you may regret later.
However, there is one exception to when you should act quickly. And that is when it comes to planning for retirement.
When to Start Planning
In the financial world, time is money. What does that mean?
If you save $5k a year for 5 years, you’d end up with about $28k, assuming you’re putting it somewhere that earns 7% interest. If you do that for 25 years though, the math seems to go wild, giving you $316k at the end of those 25 years. What happened? A simple calculation says you should only have quintupled your investment plus a few bucks for interest, but that simple calculation isn’t taking into consideration the miracle of compound interest.
Compound interest is something so sweet that only someone who has experienced it can adequately explain it, if they can get past bouts of guilty laughter. It’s when the interest you’re paid in those first few years goes to work for you and starts actually earning its own interest. Think of it as “interest on interest.” In other words, you may feel like you’re getting away with something, and in reality, you are.
If you start saving for retirement now, your account will likely experience a resilience that a late-comer’s savings account won’t. You see, the market will have its ups and downs; it’s just what the market does. Historically, a chunk of cash that’s in it for years will emerge stronger than a sum that’s been invested for only a short time.
One of the most surprising benefits to saving early is the ability to regulate yourself, delaying gratification. Grandma was right when she said that character development is more valuable than money. And in the case of saving for retirement, self-discipline might actually translate into cash. Not only will this turn into a nice nest egg, it’ll give you the character you need to spend it wisely during those years.
Guide to Getting it Done
Not sure how to start planning for retirement? Don’t let investment options confuse you. They are details to be worked out with your financial counselor. More important is today’s decision and commitment to start “buying” yourself the good life on that day you clock out for the last time.
The Department of Labor has a great online exercise that gives you an idea of what it’ll take. Depending on your goals – some folks just want to live a quiet life with the grand kids while others would like to sail around the world in a yacht – you can plug in your age, how much you’re making, and how many years you’d like to be retired for. The result is your customized target savings rate to get you started.
Sorry, Not Sorry!
You may be 25 years old. You may be 40. You might even be 60. The answer to “when” is “now,” regardless of your age. If you’re younger, you’ll reap the benefits of time. If you’re older, you’ll establish much-needed habits that will help you keep your costs low and learn to love life without a large check each week. Saving for retirement as soon as you realize you can benefits you differently than your neighbor or coworker.
People have different financial regrets, but one thing is for sure: No one has ever been sorry that they saved for retirement.
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