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.
Plan Sponsors Ask…
Q. Can Participants Really Save $1 Million in Their 401(k) Plans?
A. Many participants really can save $1 million in their 401(k) plans by contributing a modest percentage of pay, if they start early, invest well, and receive regular pay raises.
Columnist Andrea Coombes came to that conclusion after tinkering with the 401(k) calculator at BankRate.com. Specifically, Coombes says a participant earning $75,000 annually and receiving 3% pay raises each year could accumulate $1 million by contributing 7.3% of pay every year for 30 years. The participant would need to get a 7% rate of return on the account and an employer match of 50% of the first 6% of contributions. A goal of $1 million in retirement savings very likely seems out of reach to many participants. Regularly communicating about saving and investing, including showing projections translated into retirement income “paychecks,” can make a difference.
Read Coombes’ MarketWatch column for more information at http://tinyurl.com/SaveMillionMktWatch.
For plan sponsor use only, not for use with participants or the general public. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation. Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com ©2015 Kmotion, Inc. 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.
