Retirement Planning Strategy
If you’ve read this far in the article, I’m sure you’ve already figured my next point out, but I’m going to say it anyway just to be clear: It’s never too early to start saving for retirement.
The longer you have to save, the easier it is. However, it’s also never too late to start, either. How you approach retirement planning changes with your age and how long you have until retirement. Below are some of the guidelines, but keep in mind that if you plan on retiring early, your plans might change.
Retirement Planning Strategy Chart
|Stage in Life||Retirement Planning Strategy|
|In your 20's||
|In Your 30s–40s||
|In Your 50s||
When crafting you retirement planning strategy, always remember the magic of compound interest. People refer to it as the “magic” of compound interest because it’s almost too amazing to believe. Compound interest refers to when a person earns interest on his principal investments, and automatically reinvests the interests so that, in the future, he will earn interest on the principal plus reinvested interest. Repeat for 20 years or so, and it adds up! This is why it’s imperative to start saving early, so your money and interest does the work for you.
For example, you save $5,000/year from age 25-30. At age 30 you stop saving with a total of $25,000 set aside in stocks, mutual funds, and bonds. By age 65, assuming an 8% growth rate, your nest egg will have grown to $251,566.42.
In contrast, let’s say you save $10,000/year from age 45 to 50 for a total of $50,000. Even though you started with double the principal, by age 65 it will only have reached $158,608.
So get started saving now, and reap the almost magical benefits of compound interest!