Retirement Planning: The Importance of Time

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One of the most important concepts when thinking about retirement savings is
the compounding effect that occurs over time. Three elements are needed to grow
money: capital (the initial investment), rate of return and time. Of these three,
time may arguably be the most important factor.


As an example, let’s compare a 25-year-old and a 45-year old
who both begin to save $500 per month starting today
for 20 years for a total contribution of $120,000. Assuming
an annual rate of return of 5 percent, by the retirement
age of 65 years the 45-year-old will have about $205,000
in savings. However, the 25-year-old will have a total of
approximately $545,000 in savings, or 166 percent more
than the 45-year-old.

If the 45-year-old wished to achieve the same return as
the 25-year-old (at the same rate of return), she would have
to invest almost $1,350 per month (or a total contribution
of $324,000 over the 20-year period versus $120,000)
to achieve that same return of $545,000. That’s the
power of time.


What If Time Isn’t On My Side?


Although it is better late than never, your retirement planning
will be much more challenging should you wait until later in
life. A larger percentage of income must be set aside in later
years to fund retirement, and expectations for retirement
may have to be reevaluated as estimated savings may not
be sufficient. Delaying retirement may also be necessary,
especially given today’s greater life expectancy.


 Here to Help


I am here to provide support at any stage of the retirement planning process.
For individuals who are just starting their retirement planning, we can provide
planning tools, including guides and worksheets, which help to lay out your current
financial position and forecast your retirement income needs. Or, for those who
have already developed a plan, we would be happy to suggest changes to your
existing plan should your situation have changed.


My goal is to help you to take charge and maximize your projected asset pool to
meet your future objectives.


I have outlined some common retirement issues below.


Common Retirement Pitfalls
1. Relying on home equity during retirement
2. Unanticipated divorce
3. Miscalculating the costs of supporting children
4. Underestimating life expectancy
5. Expecting other sources of income, e.g., inheritance
6. Misjudging the cost of retirement
7. Not planning for unanticipated events, including job loss or illness

Please contact me if I can be of assistance.