4-Dec-2017

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The only person who will take care of the ‘Older You’ someday, is the ‘Younger You’ today.

Retirement is an immensely personal decision.  Starting with the plans we make and the savings we put aside, we all work towards the goal of enjoying our golden years as peacefully as possible.  Although everyone has retirement on their mind and plan for it most of their adult lives, there is no one-size-fits-all approach to it.  So that begs the question, what is the ideal time to start working towards our retirement goals?  Ideally, we should all be saving as soon as we start earning.  Starting younger has its own perks despite how demanding your needs may be.  Nevertheless, with some planning and foresight, you can be well on your way to a great retirement if you start early.

Saving for retirement starting at a younger age can net you twice as much in savings years down the road thanks to the magic of compounding interest.  The effects of compounding are very powerful and makes the duration of your savings a more critical factor than the amount of your monthly savings.  In essence, if you do not start saving for retirement early on in your working life, it will be expensive to try and play catch-up later on.  It is also less burdensome to set aside a small amount of money over a long period of time than huge amounts of money over a shorter period.  After all, our lives only tend to become more demanding as we age with lifestyle choices, weddings, having kids, vacations, medical expenses, paying for college and so on.

Graph showing the financial benefit of saving early

This hypothetical sample assumes an annual return of 4% after inflation.  The sample doesn’t represent any particular investment.

It might seem counter-intuitive to worry about the unforeseen future. Nevertheless, it is always wise to plan for it with a sound retirement saving.  With time, you can invest less money, but have more to spend in retirement. Consider the following example that shows the difference when you and your friend start saving at a different time period in your lives.

you can invest less money, but have more to spend in retirement

This hypothetical sample assumes an annual return of 4% after inflation.  The sample doesn’t represent any particular investment.

Another factor that also determines the fate of your savings is tax savings.  Taking advantage of tax-deferred benefits will have a significant influence on your savings.  There are a variety of tax deductions and credits available to people that save for retirement.  A good example is a Roth 401(K), if offered by an employer. It has the same contribution limits as a regular 401(k), yet offers tax-friendly features of a Roth IRA.  Employee contributions go into the account after taxes have been paid, but the contributions and earnings come out tax free in retirement.  Tax-deferred and tax-exempt accounts are among the most common alternatives to facilitate financial freedom during retirement.  Some expenses can also be reimbursed by your employer without burdening you with any new income taxes. These include expenses for: Education, Child Care, Adoption Assistance, Public Transportation, Parking, Health Insurance Premiums, and many others.

Retirement planning is somewhat complicated. Every individual may not have the complete knowledge of how retirement savings plans work. It is advisable to seek professional help from financial planners to increase your knowledge. If you already have an adviser that you trust, ask what he or she is doing to build tax efficiency into your savings.  If you haven’t already done so, make retirement saving a priority so you can keep more of your hard-earned money to enjoy in your retirement.

Sridevi Talluri

Sridevi Talluri

Contributing Writer/Editor at InsuredMine
Sridevi has been with InsuredMine since its launch and writes about InsuredMine on several platforms including social media, blogs, and web. She strongly believes development of content is the beginning of all communication. She holds a graduate degree in biological sciences from an Indian university.
Sridevi Talluri

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