The question of when to start planning and investing for retirement is easy when one understands the concepts of exponential growth and double time. The answer is always: NOW is the time to start.
Time is THE most important of factors determining the value of a retirement portfolio. Time is more important that the amount of money you save and more important than your investment rate of return.
Financial experts estimate you will need 70 – 90% of your current income to maintain your current standard of living when you stop working. The three most common sources of retirement income are social security, employer sponsored retirement plans, and personal savings and investments. Social Security benefits typically only provide a small percentage of needed retirement income. In addition, benefits will almost certainly be less in the future than today.
Therefore, your retirement plans and personal savings will need to provide the majority of your retirement needs. The earlier you begin to plan, the greater your chances to have choices and a quality retirement. Because of the power of compound growth the investments made in your early years of investing should be worth many times over the value of your investments made closer to retirement.
If you need $40,000 per year in retirement income at age 65 (in addition to Social Security benefits) you should save approximately 1 million for retirement. Here is the amount you will need to invest each month to save 1 million, assuming you earn an 8% return on your investments.
Age: 25 – $ 285/mo.
Age: 35 – $ 667/mo.
Age: 45 – $1687/mo.
This illustrates how important compounding your earnings for many years is to building your retirement portfolio. By living a little more frugally in your early years you can save enough money to have a comfortable retirement. By waiting until middle age the task becomes much harder. No matter what age you are; TODAY is the day to start planning and investing for retirement.
There are many benefits to self-directed investing including increased investment returns, reduced investment expenses, staying in control of your money, staying abreast of your risks, and being able to make adjustments quickly.
Related Reading: Investment Planning Strategies
| AAAMP Blog by Ken Faulkenberry | |
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Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record. |
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