We tend to live our lives believing that retirement is a long way away and we don’t have to think about it. We don’t like the idea that we are going to get older and, eventually, our working lives will have to come to an end.
But in the end they must. And when they do, we will have to live off the money that we save up.
There is, however, a massive difference between somebody who begins saving for retirement in their 20s and somebody who does it in their 50s. If you’re in your 20s, you have a much longer time to benefit from compound interest. When it starts to get later in life, you don’t have as long to benefit.
Beginning your retirement savings early, however, seems impossible. In fact, most younger people put it out of their minds entirely, focusing on other things, like paying off student debt.
But that’s not actually a good way of approaching the matter. Because interest rates on student loans are so low, it’s actually a good idea to delay your repayments and put any extra cash you have into an investment portfolio.
Decide On Your Goals
When it comes to planning your retirement, you need to set realistic expectations and goals. Ideally, you and an advisor can map out a trajectory together showing you what kind of retirement you can expect, given your likely future income and projected expenses.
How much you can afford to set aside for your retirement will ultimately determine your wealth. However, you’ll also need to set goals while bearing in mind your current age, how old you want to be when you retire, what you’re likely to spend in the future, and where you plan to live once you retire. You’ll also want to think about your likely health outcomes – perhaps based on family history – giving you a sense of how much health cover will cost when you get older.
Leverage Compound Interest
The most powerful tool in your arsenal isn’t your income, but compound interest. This force is the most powerful in all of finance. And over long periods of time, it can transform modest sums of money into a fortune.
Let’s say that you want to live in beautiful accommodation when you get older, such as Enterprise Retirement Living. If you invest £1,000 today and you earn 9 percent interest, then you will have £1,090 in a year’s time. The next year, you earn 9 percent on the £1,090 which means that your gain is slightly bigger. Allow this to run for 30 years and you wind up with a considerable sum of money in the bank – £13,267.
Saving A Little Early
Saving a little early on, therefore, can have a massive impact on your finances. If you are able to put away small amounts of money in your 20s, then you’re essentially setting yourself up for a happy retirement. The longer you wait, however, the more challenging it gets.