People that question if they should save for retirement are usually under 25 or older than middle age. They reason that they are young and have a lot of time to do so. They also think they’re too old and it’s too late to start retirement planning.
If you are reading this and still thinking about when you should start planning your retirement, the answer is right now. Retirement planning is the best way to prevent yourself from being in a bad financial spot in old age. Having an income when you’re older will also ensure that you aren’t a burden to your children.
So, what is retirement planning? It is the process of identifying your retirement income goals and the steps you must make to achieve them. Once you know your retirement savings goal, you will need to figure out how you can earn the money to save this amount. You will also have to assess different types of retirement plans and investments and choose the best one for you.
Read on to learn the benefits of retirement planning and why the best time to start is now.
1. Retirement Planning Ensures a Reliable Source of Income After Retirement
As we age, our earning abilities start declining. As we grow older we also don’t have the energy for demanding jobs. This is why it’s important to know our source of income when we can no longer work.
Social security will only cover 40% of your expenses after you retire. So where do you plan to get the remaining 60%? To make matters worse, the social security benefits may be further reduced as current reserves are getting depleted.
2. You May Have Many Years of Retirement
Life expectancy in the US is about 78 so there’s a good chance you may live for years after retirement. You live even longer as financial planners recommend that we plan for at least 20 years of retirement. That is a long time to live in poverty.
Those with children may be able to live with their children but this is often a tense situation. Your children may feel burdened by the extra cost of caring for you. It’s much better to plan for your retirement while you still have the time and money to do so.
3. Accumulate Compound Interest
The main reason why you should start retirement planning as soon as you can is because of compound interest. The longer you save the more funds you will have in your retirement account. This is because every year the interest you earn gets reinvested.
Consider two people that are the same age with different financial plans. One starts saving $100 a month in their retirement account from when they get their first job at 24. The other only starts saving when they turn 30.
By the time they retire at 60, the first one will have $211,140.65 and the second one will have $142,945. Just 6 years can make a huge difference. The second person may also need to save larger amounts to achieve their retirement goal.
4. You’ll Save on Taxes
Another reason why you should start retirement planning now is that you can save a huge amount on taxes. This is because you can avoid or get taxes deferred on retirement accounts like 401k’s and IRA’s.
Any interest earned on these accounts each year gets reinvested without getting taxed. Over 20 or 30 years the amount saved on taxes could add up to thousands of dollars. This is money you’ll need to finance your retirement expenses.
5. Your Employer May Give You Free Money
Many employers match employee contributions to their company-sponsored retirement accounts. The actual amount varies per employer. But the average amount is about 4.7% of your contributions.
Your employer’s contribution will accumulate interest every year until your retirement. So it could amount to a sizeable chunk. Not taking advantage of these contributions is equal to throwing away much-needed retirement income.
6. Expenses Increase With Age
Your insurance premiums will go up as you age. This is when you need medical benefits the most. For this reason, it’s important to have retirement savings to pay for any medical procedures that Medicare or your insurance company won’t cover.
You’ll also have to budget for a more specialized diet, vitamins and supplements and items like wheelchairs and crutches. Remember that you will also not be as mobile as you used to be. So may need to pay for caregivers, gardeners, cleaners, drivers, etc.
7. You’ll Be Free to Pursue Your Dreams
Retirement is your best opportunity to do things you have always wanted to do. This is because you will have a lot of free time and very few obligations.
It’s important to save enough money so that you won’t be limited on the things you can do with your time. With a big nest egg, you can give yourself financial freedom. You’ll be able to indulge in things like taking that cruise around the world or buying the car you’ve always wanted.
8. Become the Giving Grandparent
Many of us have fond memories of our grandparents giving us money or gifts on our birthdays. Planning for retirement will allow you to be generous with your loved ones in your old age.
You may find it easy to buy gifts and even take your family on trips and vacations. On the other hand, not saving for retirement could lead to strained relationships if you are always asking relatives for financial help.
The Urgency of Retirement Planning
There is absolutely no reason why you should not start retirement planning now. The best retirement plans take decades to mature. So the sooner you start, the bigger your retirement fund will be.
Your older self will thank you for any decisions you make now that will make their life easier. If you need help putting together a personalized retirement plan, don’t hesitate to contact us today for assistance.