When thinking about retirement the concept of time is not the first issue we think about. Our minds quickly calculate how much money one can dedicate to a retirement account, and if our budget will allow it to continue investing our money on a reoccurring event. What we never consider is how long we plan on living and how that longevity in life can grant us more in retirement money. The golden rule for retirement planning is to start putting money away early into a retirement account and over time that account will grow for you. Even if you don’t start at an early age, you should begin as soon as possible in order to start the process.
Life Expectancy
An important factor in retirement planning is life expectancy. After the COVID pandemic our life expectancy here in the United States for the average man is about 75 years, and for the average female it is about 80 years. However, the concept of saving for retirement is not really discussed until our late thirties or early forties. While individuals wait until they feel that they are stable in their career or have established a family, precious time has gone by where they could have invested into their retirement. The problem is that we become financially responsible and literate when time has passed. Prior to attaining our financial knowledge, we tend to believe in certain misconceptions for not taking retirement planning seriously at a younger age. The following are the most common misconceptions we keep telling ourselves:
- Not making enough money: You can always start off with a small amount
- Prioritizing college: Attending college will not hinder you from opening up a retirement account and putting a small amount towards your account
- Having a family: If you plan well enough, not only can you open a retirement account for yourself but you can start an IRA account for your children as well
- Saving for a vacation: With a great plan and discipline a vacation and retirement can be achieved
- Bills are too high: Budgeting in addition to having a serious plan on removing unnecessary debt like credit cards are essential
- Saving to purchase a home: A home is a great investment, however both can be achieved through smart planning
Incentive to Start
The best time to start planning for retirement is right after you finish high school, opening up an Individual Retirement Account (IRA) or a 401k when you hit 18 years old. Hopefully, you have some form of employment where you can put anything into your account. The reason for why you should start so early is because you have time on your side, and it will be easier for you to build your retirement over the long duration of time.
There are other incentives that you can benefit from when starting early:
Compound Interest: When you earn interest on both the money you invested and the interest you earn compounded over time. This is the most powerful incentive to start a retirement plan early because your invested cash can possibly grow immensely over time due the interest building.
Healthcare: Since we have established how long the average life expectancy is, then you will have to consider more money to take care of yourself when you retire at an older age. Healthcare costs will continue to rise over time. Having extra money from a retirement fund will help you to pay for out of pocket fees or any surprise medical expenses.
Diversified Investments: As you start your retirement investments early, then you will have the option of accessing different funds and diversifying your retirement accounts. Enrolling in more risky retirement funds could be an option which could provide you with higher rewards over time. The benefit of starting early is that your risky investments can recover over time and successfully provide you a significant financial return.
Cost of Living: When planning for retirement, you must take into consideration that the average cost of living expenses will continue to rise over time. This magical process is called inflation. If you really want to retire comfortably, it would be vital to start a retirement fund as early as possible and let compound interest work for you. Our cost of living expenses are only going to go up and your retirement investments should not only be able to keep on pace with the expenses but surpass them.
Social Security: We all have heard the same words before, we should not rely on social security because it might run out. I doubt Social Security will run out but there definitely will be some issues on just relying on Social Security benefits as your retirement option. It would be wise to invest in your own retirement fund early so that you will have another option instead of just Social Security. In fact, if you start investing early and have a well-disciplined retirement plan then you might not need Social Security at all.
Plan Retirement Milestones
When we wait longer to plan for retirement we lose out on something valuable that cannot be replaced and that is precious time. Although with modern medicine we have extended our lifespan, it still is important to start retirement planning at an early age. If you have a well-disciplined approach you can determine how you want to save in order to live the lifestyle you want when you retire. A defined approach is going to require you to plan, set milestones, and execute your goals. Even if you don’t meet your milestones at the time you wanted it is still important to work hard to achieve them. However, none of these financial goals can be achieved without taking time into consideration.
