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Procrastination Can Cost You!
Putting off retirement savings is a missed opportunity.
Most people start saving for retirement at 35 – fully 10 years beyond the ideal age, according to a recent Financial Engines survey.* Reasons to procrastinate are familiar to many; but delaying your savings can be costly…
Most people start saving for retirement at 35—fully 10 years beyond the ideal age, according to a recent Financial Engines survey.1 Reasons to procrastinate are familiar to many.
But delaying your savings can be costly, as the chart below shows. Let’s say Tom starts saving 6% of his $36,000 salary at age 25. With a reasonable rate of return and adding to his contributions each year, Tom could have close to $500,000 by age 65.
Jeanelle waits until 35 and will need to contribute twice as much—12% of her yearly salary—to achieve the same goal as Tom. Ernesto, who waits until 40, has a steeper hurdle: The amount of annual contribution required to build a $500,000 retirement nest egg rises to 16.5%.
Why does the investor have to make higher contributions the longer he or she waits? The simple reason is lost opportunity, in a few forms.
The loss of compounding – When your money earns a return, that return is added to your original investment and earns even more money. That’s compounding.
The loss of company-matching contributions – If your company matches your 401(k) or 403(b) contribution, it will add a certain percentage to your contribution each month. This is basically free money for you.
The loss of annual increases in contributions – If you are not increasing your contributions, you lose the potential for investment growth on those higher amounts.
Putting things off is human nature. But it’s never too early or late to start to save, and waiting until your late 30s or early 50s doesn’t cause irreversible damage to your ability to build a nest egg. It just means you may have to contribute more to your retirement account than you would have if you started earlier.
1 http://blog.financialengines.com/2015/04/14/the-cost-of-financial-procrastination/
Disclosure: This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. LPL Financial and its advisors are providing educational services only and are not able to provide participants with investment advice specific to their particular needs. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. © 2015 Kmotion, Inc Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com
Congratulations on Your Retirement…Now, Don’t Go Broke!
Being newly retired is definitely a reason to celebrate — and spend — some of the hard-earned money you’ve saved over the years.
Yet with Americans living longer, experts say you need to plan for a retirement that could last 30 years or more. Add in ever-rising medical costs, mostly stagnant Social Security checks and all of a sudden that pile of cash doesn’t look so big.
Authors Katie Young and Sharon Epperson lay out some rookie mistakes to avoid so that you don’t run out of money iin retirement.Click here to read the full article and view the video from CNBC.
Don’t Allow Parental Guilt to Spoil Your Retirement!
How to balance college for kids versus your retirement…
Kids can avoid supporting parents tomorrow by paying their own tuition today. Author Andrew Osterland says “our ‘shaming culture’ for parents can lead to disastrous financial results, and that controlling instinctive parental guilt is key.”
Read more of what Andrew Osterland from CNBC has to say about this vexing problem confronted by many families.
How Important Are Retirement Savings? very, verrrry, VERY!!
How important is saving for retirement? The Social Security Administration’s new study makes the answer pretty clear: very.
The biennial “Income of the Aged” report released this spring examines the retirement income of more than 34 million households, married and single, to produce a financial snapshot of those 65 and older in 2014, the most recent available data.
Savers have nearly doubled the annual income in retirement than nonsavers.
When a household is reduced to one person, income may decrease dramatically.
Income often decreases as a household ages.
Click here to read more about why savings now matter, especially for women.
You Can’t Afford to “Wing It” When It Comes to Retirement!
Having a written plan makes it more likely you will stick to your plan.
You’ve heard this before: Failing to plan is planning to fail. This couldn’t be more true than when it comes to retirement. According to a recent survey conducted by the Transamerica Center for Retirement Studies (TCRS), more than one-third (37 percent) of workers don’t have any strategy for their retirement. These people are truly winging it…leaving their futures to chance.
The study also found that almost half (47 percent) of all workers have a strategy, but it’s not written down. Such a plan is better than nothing, but most likely it’ll be incomplete.
Fewer than one in five workers (16 percent) have a written plan, which is ideal. Research in behavioral economics shows that having a written strategy increases a person’s commitment to carrying out the plan.
So what should go into a successful retirement strategy? Read more, and check out additional links, from MoneyWatch’s Steve Vernon.
The Value of Time
When recent retirees are asked whether they would have done anything differently about their retirement planning process, many say they wish they’d started sooner. The mistake that people at all income levels make with retirement accounts is not starting at a younger age.
Time is an important ally when saving and investing, because it allows you to recover from periodic bouts of market volatility. It took five and half years after the vertigo-inducing drop that deleted $11 trillion from stock portfolios for the Dow Jones Industrial Average to regain all of its losses and reach a new high. Those who did not panic and sell their stock investments in 2008-2009 have fully recovered.
Having time on your side makes it easier to accumulate money for retirement, because those who start early don’t have to set aside as much every month. Each decade you delay starting to save means you’ll have to approximately double your savings rate to meet your goal. For example, if socking away 5% per year starting in your early 20 will get you to your goal, waiting until your 30s may mean having to save 10%, and so on.
Time gives you the luxury to be able to develop a plan, and to adjust your savings strategy as you move through your first job, while building your career and preparing for the transition to retirement.
While you’re young, it’s fun to spend money and live in the moment. But, if this describes your philosophy of money, you should motivate yourself to start saving sooner. The longer you wait to save, the more you ultimately will need to save. By making small adjustments in your savings rate now, the easier it will be for you in the long run.
(c) 2013 Kmotion, Inc.*
*Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com
This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance; nor as the sole authority on any regulation, law or ruling as it applies to a specific plan or situation. Plan sponsors should consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.
