The Importance of Prioritizing Retirement Planning Now
When you are in your twenties or thirties, retirement planning seems like such an easy thing to put off until later in life. After all, you may have just entered the workforce and are currently focused more on the present. It is easier to turn your attention towards immediate goals such as saving for a new car, buying a house or traveling when possible. However, the earlier you start to prioritize saving, the better. Here, the certified financial planners at Fiduciam Wealth Planning identify some of the most important reasons to prioritize saving for retirement, no matter your age.
Benefit from Compound Interest
If you’re new to the world of high-yield savings accounts and investing your money, you need to learn about the benefits of compound interest. Compound interest will significantly boost your retirement savings by allowing you to earn interest on your interest. Because the interest you earn on your savings in a high-yield savings account will be added to your total capital (and subsequently allow you to earn more in interest as the capital grows), the amount that you save by investing in your twenties versus your thirties can be hundreds of thousands of dollars. By using a Compound Interest Calculator, such as this example from Nerdwallet, you can see for yourself how adjusting the Investment Time Span drastically impacts future balance. For example, if you start investing $300/month at the age of 25 with an estimated return of 8%, you will retire at 65 with a balance of $1,056,981. Alternatively, if you wait until the age of 35 to start the same strategy, you would retire with a balance of $694,532. By putting this money away earlier, you are taking full advantage of compound interest and its benefits!
If you are not already aware, investing money into a 401k or IRA account is actually making an investment in the stock market. This being the case, your account will naturally fluctuate up and down with the market, which can be nerve-wracking at times. However, by saving for retirement early, you begin to create a safety net for yourself against market fluctuations. The larger your account, the more you are able to handle short-term losses that occur as a result of market dips. Additionally, having a larger portfolio allows you to be slightly more aggressive with your investments in hopes of yielding higher returns. Only when you get closer to retirement should you start to shift towards protecting your savings.
Practice Financial Discipline Early
Aside from the monetary benefits of saving for retirement at an early age, you also learn financial discipline and responsibility. As we discussed earlier, many young workers are striving towards short-term goals such as starting a family or buying property. These are fine goals, but starting a retirement savings plan in addition to working towards your short-term goals means you are setting your future self up for success, even if you can only afford to put a hundred dollars away each month. Putting money away for retirement as part of a monthly financial plan can become as simple and routine as paying your bills. Even if you are only able to invest a certain amount of money each month, the simple act of saving is doing yourself a huge favor in the long run.
Ready to Start Thinking About Retirement Strategies?
Ultimately, procrastinating your retirement planning even by a decade may mean the difference between retiring a millionaire, or having to work much longer than you anticipated. Whether you’re new to the workforce and want to start building your retirement strategy, or you’re nearing retirement and would like to start adjusting your strategy, our team of skilled fiduciaries can certainly help. Reach out to the Towson-area CFPs today by calling (410) 339-7060 or contacting us at https://www.fiduciamwealth.com/contact/.