Saving for Retirement – Cost of Delay

Retirement Planning

Financial advisors might tell you that it’s never too late to begin saving for retirement – “your golden years”. I beg to differ –  the simple fact is that putting off retirement plan for long can seriously reduce your retirement nest egg. The cost of delay can make a lot of difference on the amount as well as return on investment.

I have seen that the average person will need approximately 70% of the income they’re currently making in order to maintain the lifestyle post retirement. And to make this happen it’s best to start as early as possible. It will allow you to take advantage of compound interest. Secondly you can reduce the amount to be set aside to reach that specific retirement goal.

Below are two examples that clearly show how saving early for retirement is a sound and intelligent financial choice.

Example # 1:

George and Mia are 21, college graduates and start the same new job at the same pay. George decides that he’s going to save $100.00 per month of his pay but Mia figures that putting off retirement savings while she has some fun is no big deal. She decides to start saving the same $100.00 per month but 10 years later, when she turns 31.

I am assuming that both of them have approximately the same expenses, and receive an annual return of 6%. George will have approximately $253,000 in his retirement savings account by the time he reaches the age of 65. Whereas  Mia will only have $132,000, a difference of $123,000 just because she started saving 10 years later than George.

Of course there are other factors that come into play when planning for retirement. Most important being inflation, then there are changes in lifestyle  needs. I can assist you to figure out how much you need to save in order to maintain your pre-retirement standards. Do keep in mind that this will probably change as time goes. In fact, they may change several times during your working life. That said, having a good idea of what you’re going to need (and want) post retirement will make it easier to determine if what you’re saving now is going to be enough.

Example #2:

Robert decides that he wants to retire by the time he’s 50. We sat together and determined that he needs $1M  to have enough to last for the rest of his life. Robert is 25 years old now and has $5000 in savings. Assuming a 6% return, he’ll need to save $1400 a month in order to reach his $1 million goal by the time he turns 50.

But if he starts saving at 30, Robert will need to put aside $2100 every month, or $700 more each month, just because of the difference the delay of five years will cause. That’s approximately 50% more per month than he will have to save then if he starts at the age of 25.

I know many who simply can’t save enough to meet their goal because they started too late. The best thing to do here is set aside as possible each month, saving whatever you can afford and cutting back as much as possible on expenses.

Lesson to be learnt.
The two examples show that early saving for your retirement is a prudent idea. The cost of delay can have a major impact on your final goal. To achieve your goal means exploring any and all options that are available. And once you’ve determined which ones are right for you, start right away.

I have worked with many clients to plan their retirement. I am happy to support with your planning too. We can design a plan based on your current expenses and what you need in future.

Simply put, the earlier we start saving for retirement, the easier it will be to put enough aside to enjoy your golden years in the fashion that you’d like.

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