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Council Post: Retirement Readiness: Saving Early Is The Golden Ticket

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By Tolen Teigen, Chief Investment Officer, FinDec.

In your youth, you may regularly get pummeled with questions like: “What do you want to be when you grow up?” “What will you do when you graduate?” and “What are you going to do when you retire?” At any point in your life, it can be difficult to visualize your future self and know exactly what you will be doing.

The golden years, for most people under 40, are hard to imagine, and when they reach midlife, their answer to what they will do when they retire is often something like, “I’m going to travel the world or live in a beach house on the coast!” Those may indeed be authentic goals, but retirement often becomes an intangible portal for outsized dreams rather than a North Star guiding your life experiences, actions and decisions toward your realistic goals.

While you don’t have to know exactly what you want to do when you retire, the assumption is that you will stop working someday. And in order to have financial security, you will need to set a plan in motion decades before you reach retirement age.

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Throughout my career as a financial planner, I have witnessed a common theme—people tend to delay acting until they are face to face with the issue at hand. When people settle into their lives and careers, their focus is often on work, family, social activities and civic engagement. Priority number one is today, not the future.

But here is the golden ticket: If you focus a small amount of time on imagining and planning for retirement in your early adult life, you will be ahead by leaps and bounds when you get there.

The path to retirement will be much easier and more prosperous if you start early and continuously work it. The nest egg will not just appear at age 65; it must be tended to and built upon throughout your life so that it can continue to grow and enable you to live the retirement life you envision.

How does it grow? By the eighth wonder of the world­—compound interest. The more you have invested, the more exponentially it will grow because of the compounding effect.

As a rule of thumb, you will need to save twice as much for every 10 years you wait to save. For example, if you have 30 years to save for a goal, you may need to save 16% of your income. But if you have 40 years to save, you will only need to save about 8% of your income to hit the same end number. This is all due to compounding.

While my clients who are 30-40 years old feel like their retirement account is only growing by the money they are contributing to it, my clients who are closer to retirement are thrilled with the growth in their accounts when the market is up. This is compounding at its finest. The first 15 years or so, the account is being seeded. The compounding takes hold in the next 10-20 years. So, the sooner you start saving, the sooner the compounding effect is reached. Even smaller investments add up over time. Remember, 100% of something is more than 100% of nothing.

While determining what retirement looks like may seem overwhelming, planning for it does not have to be overly complicated. Setting a goal, creating the plan and taking small steps along the way will result in the achievement of long-term goals. And you don’t have to do it on your own. Financial planners are skilled at helping to create plans and modifying them along the way as needed.

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I have never had a client tell me they regretted making a financial plan; they only wished they had started earlier. The first step is to take time today to set yourself up for a financially healthy tomorrow.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.


Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?


Source: Fox Business

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