The road to retirement is a long one. When you’re young, retirement rarely comes to mind since it seems so far away. This gives people an opportunity not to start strategizing and preparing financially because they see their whole lives ahead of them, and saving a few bucks a month for retirement is probably the last on their financial to-do list. The need for early retirement planning is not on the important nor urgent list.
This lack of strategy, however, will only cause more financially straining times down the line. The laggards left to procrastinate will soon understand that the long road to retirement won’t seem long enough. They are left with the stunning realization that they have to save a large amount of money to catch up to the people saving a few bucks a month all those years ago. If only the planning for retirement had been started earlier.
When to Start
Yesterday. Obviously, that’s impossible, but the fact of the matter is to do it. The sooner you start, the better. The longer you wait, the harder it gets to do. It’s just like exercising. Once you get started, it just becomes part of your day. Once you start saving, it gets easier and easier to do.
How Much to Save Monthly
For younger clients, right out of school, it’s been proven that starting with $25 a month can make a big difference in their financial lives. For those who fall behind and get to the saving and investing stage later in life, the tough love truth is that they will have to save a much higher percentage of their incomes to meet their goals than they would have been if they had started earlier. It’s a simple algebraic equation we’re talking about. There are three variables at play here; time, money and rate of return. The longer you wait, the more money you need to invest and the higher rate of return you need to earn to get to the same spot.
What About the Laggards
It’s going to be tough, but be prepared to invest a higher percentage of your income to meet your goals. Also, be prepared to push your comfort zone in terms of the risks you are willing to take. Laggards sometimes might feel desperate and often make riskier decisions based on that desperation, but it’s still important to stay calm and make rational and smart decisions.
Take advantage of any plan your employer offers, especially if they make matching contributions. If that is not an option, start and fund your own IRA or Roth IRA. Treat the funding like any other bill you owe each month and invest something every month. The benefit of using a plan your employer offers is that usually, with some planning, is these programs allow you to contribute more of your money towards retirement each year than the IRA and Roth IRA’s offer. Most qualified retirement plans in 2013 will allow a maximum contribution of $17,500 versus just $5,500 for an IRA or Roth IRA. That being said, in the employer plan, you are a captive to whatever investment options they offer. Whereas in an IRA or Roth IRA, you have many more investment options to choose from.
Gregory M. Reed is a Certified Financial Planner (CFP®) with Raymond James Financial Services, Inc. Greg is a FINRA/SIPC member located at 3201 S. Providence Road, Ste. 102, Columbia, MO 65203, who serves the Mid-Missouri area. You can contact him at 573-777-1934 or visit his website http://www.raymondjames.com/gregoryreed/.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Gregory M. Reed, CFP® and not necessarily those of RJFS or Raymond James.