Providing Premium Insurance & Financial Advisory Services since 2008

When is the Best Time to Start Planning for Your Retirement?

The simple answer to the question, ‘when should I start retirement planning’ is: as quickly as you can afford to. Once you have a stable source of income, you should open a retirement savings account and start putting some money aside for the future. However, in the real world, things may not be as straightforward.

So, in this article, we’ll address what to do when the situation isn’t ideal. We’ll start by highlighting the importance of starting your retirement planning early and saving some money, no matter how small. Then, we’ll look at compounding and how powerful it is for building a retirement account.

And finally, one of the biggest fears attached to retirement planning, ‘is it too late for me to start’, will be discussed. Let’s get into it:

It’s never too early to start retirement planning

Because their retirement date is still so far away, some young people don’t see the point of starting a plan early. However, Morning Consult estimates that 39% of adults in the US start saving for the post-work years in their 20s. This indicates that young people are becoming better-informed about the benefits of starting a retirement plan early.

There’s a good reason for that. If, at 25 years old, Josh starts saving $150 every month. By the time he retires at 65, he’d have a retirement account with $393,700 (assuming an earning rate of 7%). And that’s if he doesn’t increase his monthly contribution at all in those 40 years. The early years are crucial and the quicker you start, the more money you’re able to save up.

The multiplying effect of compound interest

Another advantage of starting a retirement account in the early years is compounding. If you invest your funds smartly, you can start accumulating interest on your savings year on year. As a result, the account grows and you get to leverage the power of compound interest.

In the example above, the $150 Josh saved every month for 40 years only adds up to $72,000. Because of compounding, however, his account earned over $320,000 in interest. So, what if Josh saved $250 instead of $150? Well, he’d end up with $656,000 at retirement. That’s an increase of over $260K, just because he contributed $100 more every month. Interest earned on his contribution would increase to $536K. That’s the power of compounding.

Am I too old to start retirement planning?

If you didn’t start retirement planning in your 20s or 30s, it’s easy to think “it’s too late, what is the point?” now. But do not despair, because all hope is not lost. If you make a concerted effort starting now, you can put together a sizable nest egg for yourself when you retire. The options available to you include:

  • Contributing more money: Since you’re playing catch-up, you need to double your efforts and make higher contributions. Cut your monthly expense as much as possible, and send what’s left to your retirement account. Your financial security down the line depends on this, and 70-year-old you will be thankful.
  • Finding optimal retirement plans: Another way to make up for years of not contributing is to invest smartly. Even at 50 years, you still have many years of stock market cycles to go through. Look for a financial advisor who can put together an investment plan that aligns with your goals and risk appetite. If big providers are offering a certain annual percentage rate (APR), you’ll probably find boutique firms with higher returns.

Conclusion

So, when is the best time to start planning for your retirement? In your 20s and as soon as you get your first job. If you start early enough, even if you’re only able to put aside a small amount of money, you can grow your account significantly due to how much time you have. As your finances improve, you may decide to contribute and invest more.

What if you didn’t start in your 20s? That’s okay too. The next best time to start is now. Roll up your sleeves and get to work. Max out your contribution, and find a trusted financial advisor that charges lower fees and is more hands-on than big-name wealth managers. They can work with you to earn more returns and manage your funds better.

Scroll to Top