Money Sense

Why You Need to Invest Early

Let’s pretend you have an annoying next-door neighbor. He’s loud, obnoxious, and bothers you all the time. You wish you had a hedge to create a bit of privacy.

When was the best time to plant that hedge? Obviously, it would be better if you had planted it ten years ago! But you didn’t plan ahead, so the second best plan is to get it growing today. It’s better late than never!

Retirement savings is a lot like planting that hedge. You have probably heard that your greatest ally in growing a nest egg is time. But how important is it, really?

Let’s take a look at a hypothetical example.

Larry starts saving for retirement at age 30, stashing 5,000 dollars per year in a retirement account that has a 6 percent compounding interest rate. By the time he is 65, Larry has saved 557,000 dollars for retirement!

But what if Larry had waited until age 40 to get started? He can still save up 557,000 by age 65, but he’s lost ten years at this point. To reach that same savings goal, he will have to save over 10,000 dollars per year.

And if he waits until age 50 to get started? Larry will have to stash over 24,000 dollars in that retirement account each year, in order to reach the same end goal.

Looking at this example, it’s easy to see the impact of time on your retirement savings! It is probably fairly easy for fictional Larry to save 5,000 dollars per year, starting at age 30. But if he procrastinates, he will have to work much harder in order to reach his retirement savings goal.

Procrastinating is really the worst thing you can do, with regard to financial planning. The best time to start is always today, so give us a call. We can discuss your retirement goals with you, and help you decide upon a strategy to reach them.

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