You’ve no doubt heard that “time is money.” While this expression may be applicable in many areas of life, it’s especially relevant for investors — because the more time you spend not investing, the less money you are likely to have when you really need it, such as during your retirement. That’s why it’s essential that you don’t wait to start saving for your days as a retiree.
Many people think it won’t make much difference if they delay investing for a few years. As you know, time flies, and before you know it “a few years” turns into a decade — and a decade’s postponement in saving for retirement can make an enormous difference in your life.
How big a difference? Suppose you plan to retire at age 65. If at age 25, you began putting $200 a month into a tax-deferred vehicle, such as a traditional Individual Retirement Account (IRA), and your investments inside that IRA hypothetically earned on average 7 percent a year, you would accumulate about $512,000 after 40 years. However, if you had waited until you were age 30 to start saving for retirement, with all else being equal, you’d end up with only about $355,000 when you reached 65 — $157,000 less — due to that five-year delay. And if you waited 10 years, until you were 35, you’d end up with about $243,000 — far less than half of what you would have accumulated had you started saving at 25. (Keep in mind that you will eventually have to pay taxes on these accumulations, and the actual figures don’t reflect fees, commissions or expenses.)
Clearly, the cost of delay can be considerable — which is why you should consider taking these steps:
•Develop a strategy with your financial adviser. It’s easier to stick to a strategy if you know where you’re going. Your financial adviser can help you determine how much you need to save to reach the type of retirement you’ve envisioned.
•If you haven’t started saving, begin now. If you wait until you feel more financially comfortable before you invest for retirement, you may never begin. Even if you can put away only a small amount, such as $50 per month, you’ll have made a start.
•To make it easier on yourself, set up your accounts to automatically move a set amount each month into your IRA. As the above examples show, the best way to build substantial savings is to start early, but even if you’re in your 30s or 40s, you can catch up — although you’ll need to save more to potentially get to the same level.
•Increase your investments when your income rises. Every time you get a salary increase, boost your contributions to your IRA and your 401(k) or other employer-sponsored retirement plan.
•Don’t take a “time out” from investing. Keep on investing, whether the “news of the day” is positive or negative. The best investors are those who follow a consistent strategy and continue investing, year in and year out.
In short, save early, save often — and keep investing.
Financial adviser Yvonne Catton’s Edward Jones office is at 850 Main St., Suite 104, in Ramona. She may be contacted at 760-789-2804.