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Saving early is the key to being ready for retirement.
When you’re young, people may ask you a lot, “What do you want to be when you grow up?” “What do you plan to do when you finish school?” “What will you do when you stop working?” At any time in your life, it can be hard to see yourself in the future and know what you will be doing.
Most people under 40 have a hard time imagining their golden years. When they reach middle age, they often say things like, “When I retire, I’m going to travel the world or live in a beach house on the coast!” Those may be real goals, but retirement often turns into a vague doorway for big dreams instead of a North Star that guides your life experiences, actions, and decisions toward your real goals.
You don’t have to know what you want to do when you retire, but it is assumed that you will stop working at some point. And if you want to be sure of your money in retirement, you’ll need to make a plan a long time before you reach that age.
As a financial planner, I have seen a common pattern: people tend to wait to act until they are right in front of the problem. When people are settled in their lives and careers, they tend to focus on work, family, friends, and being involved in the community. Today, not tomorrow, is the most important thing.
But here’s the golden ticket: If you spend a little time thinking about and planning for retirement when you’re a young adult, you’ll be way ahead when you get there.
If you start early and keep working, the path to retirement will be much easier and more profitable. The nest egg won’t just be there when you turn 65. You have to take care of it and add to it throughout your life for it to continue to grow and give you the retirement you want.
What helps it grow? The eighth wonder of the world generates interest that grows over time. Because of the compounding effect, your money will grow faster and faster the more you put in.
As a general rule, for every 10 years you wait to start saving, you will need to save twice as much. For example, if you have 30 years to save for a goal, you might need to put away 16% of your income. But if you have 40 years to save, you will only need to save about 8% of your income. All of this is due to adding up.
When the market is up, my clients who are 30–40 years old feel like their retirement accounts are only growing by the amount they put into them. On the other hand, my clients who are closer to retirement are thrilled when their accounts grow. This is the best way to add things together. For the first 15 years or so, money is put into the account. In the next 10–20 years, compounding will start to work. So, if you start saving sooner, the effect of compounding will happen sooner. Even smaller investments add up over time. Always keep in mind that 100% of something is better than 100% of nothing.
It can be hard to figure out what you want to do in retirement, but planning for it doesn’t have to be hard. Long-term goals can be reached by setting a goal, making a plan, and then taking small steps along the way. You don’t have to do it all by yourself. Financial planners know how to help people make plans and change them as needed along the way.
No client has ever told me that they are sorry they made a financial plan; they simply wish they had begun sooner. The first step is to set yourself up today for a healthy financial future.
