Retirement Planning – The Cost of Waiting

“The way to get started is to stop talking and start doing.”- Walt Disney

The Time for planning for your future is now but in today’s fast paced, hectic world many people put off important decisions until another day. The excuses, “I don’t have time to plan”, “I can’t afford to invest”, and “I really don’t understand” will jeopardize your achievement of your financial goals. The truth is you shouldn’t delay. The earlier you start, the more you can maximize the power of time to help realize your retirement goals. Unfortunately, as I’ve told you before, one of the misconceptions is that you don’t have to start planning until a year or so before you actually retire. Sure, you may have been saving for your retirement for many years, but have you really been planning? American research suggests that people who take the time to plan ahead end up with more resources when they are ready to retire.

Once you know your basic goals-your retirement age, the type of lifestyle you want, and how much income you’ll need-you can create a plan to achieve them. If you wait until the last minute, you won’t have time to make up the potential gap between expenses and retirement income. This gap is certainly one that most Bahamians can expect to face as a result of your saving and investing habits coupled with the lack of National Insurance resources to fund expected retirement benefits. Another misconception is that your employer or your human resources department at work will give you all the information you need to make your financial plans for retirement. Therefore, most persons wait for their employer to initiate the retirement planning process. Unfortunately, your employer is not required by law to provide you with a pension or information about pension. Fortunately, a number of employers have provided their employees with a pension plan. However, these plans are only required to provide you with basic information -such as the date when you will become eligible to receive a pension, how much you will receive if you retire on different dates, and the options for withdrawing money out of your account. But your employer has no obligation to educate you about other important retirement topics such as Retirement planning, National Insurance benefit entitlements, or Life and Medical Insurance needs during retirement.

To develop a complete picture, you either need to spend time reading and informing yourself, or find and work with a retirement coach you can trust.

Time is definitely an ally when you’re saving and investing for long-term goals. Let’s consider the difference an early start can make: If you invest $2,000 a year from age 25 to 35, earning a 6% annual return, at age 65, you’ll have more than $200,000.

  1. If you invest $2,000 a year from age 35 to 65, earning the same 6% annual return, at age 65, you’ll have only $150,000.

As you can see, an early start would let you maximize the benefits of compound interest, even if you stopped saving after age 35. So you see that by waiting just 10 years to get started could cost you more than $50,000 in investment returns.

Procrastination can be the difference between financial success and financial failure. Let’s look at another example: if we assume you have $50,000 to invest at 7% compound interest.

Let’s compare investing immediately or waiting 10 years.

  1. In 20 years, if you start today your $50,000 will grow to $193,484
  2. If you waited 10 years, your $50,000 will grow to $98,358.

Here, waiting ten years will cost you almost $100,000.00 of investment returns.

When you have a plan and you are able to invest systematically, you can take advantage of compounding interest. The power of compounding interest cannot be overstated. When you save and invest, compounding interest works in your favour, helping you to build the savings you need for future financial goals. But to maximize the benefit of compounding interest you must get an early start. The sooner you begin planning and saving, the more your money will grow.

The rate at which your retirement investment is able to grow plays a key role in determining the amount of income you will have when you stop working. However, when you add the advantage of compounding to the formula, your retirement dollars can grow even faster. Compounding is the growth that is computed, based on the sum of the original investment plus already accrued earnings. Simply put, your investment grows at an accelerated pace as your money makes money. Secondly, you must invest for the long-term. This keeps your money working-and compounding-for you. With the power of compounding, a relatively small amount could add up to big savings over the long term. Let’s say you have an initial investment of $10,000 at annual rates of return of 6% and 10%, compounded annually over a 20-year period. Over a 20-year period, $10,000 grows to over $30,000 at 6%, and nearly $70,000 at a 10% growth rate. That’s letting your money work for you!

Copyright 2001 – 2009 – Glenn S. Ferguson

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