When you’re living your best life in your thriving 30s & 40s, retirement can feel light years away. You’re still young and there’s loads of time to get prepared, right?
We’re not so sure. While it can be hard to take an event that’s so far away seriously – especially when day-to-day living might already feel like a stretch – there are some compelling reasons why beginning to plan for your retirement in your 30s and 40s is one of the best financial decisions you could make.
Here’s why.
Time is your best friend.
The sooner you start, the better. Why? Compounding returns.
With your savings account, compounding returns (more often referred to as compound interest) is when the interest you earn on your savings is reinvested and then interest is earned on the new total, earning you more interest. It’s your money working harder.
Similarly, with shares and managed funds, it’s the returns you’re earning on your investment growing over time.
It’s what turns the $10,000 you invested into a fund at age 30, that earned an average 5% annual return, into $43k in 30 years by just letting it sit there without making any further contributions.
Another reason for beginning to plan for your retirement sooner rather than later is that the sooner you start, the more flexibility you give yourself to exit the workforce on your own terms.
That could include planning to retire before 65.
But surely, starting in your 30s is way too soon!
The reality is that it’s never too soon to start planning for your retirement. A big reason for this is that you probably want to ensure you can enjoy the same level of comfort you have today when you reach retirement. And the best way to achieve that is to start provisioning for that now.
Think about that daily artisan doughnut you enjoy at your local café (or any other treat!). To fund this sugary addiction alone, you probably need to have saved around $50-60k for the duration of your retirement (assuming you retire at 65, live until you’re 90, and that doughnuts stay between $5.50-$6.50). Of course, if you’re not a sweet tooth, you could apply that same analogy to something else you love, like travel, hobbies, or anything else that is essential for you to maintain in your golden days of leisure.
Doing nothing now will cost you more later on
Finally, the later you start, the less opportunity you have to accumulate wealth.
Say you have a salary of $80,000 and contributed 3% of your annual salary to a managed fund that earned an average of 5% interest. Without adjusting for pay rises over a 30-year period, these savings could equate to around $346k. If you only gave yourself 20 years to save, the amount would only be around $212k. That’s a difference of $134k you could be missing out on!
What’s more, if you have a mortgage, it may pay to check whether you’re on track to paying that off before you hit 65, and if not, see if there’s a way to speed up the process. Not only will this mean fewer costs to deplete your retirement savings, but it may also give you more time before you retire to top up your retirement investments. Perhaps even allowing you to add an investment property into your portfolio.
Preparing now helps you prepare for the unknown
With retirement so far away come many unknowns. Current data tells us we’re living longer* which means we’ll likely need to have even more saved to cover the years we’re retired. And who knows what else may lie for us around the corner?
So, start planning for retirement today for a brighter financial future where you can continue doing the things you love. Like biting into that delicious doughnut you love to get each day.
Not sure where to start? We can help. Book a consultation with an enable.me financial adviser today who can show you the steps you can take today to prepare for your retirement. (fees apply).
Disclaimers: This blog post is for informational purposes only and does not constitute individual financial advice. The figures used to demonstrate investment returns were chosen for simplicity and ease of understanding. Returns are never guaranteed, and investments always carry a degree of risk. If you’re interested in receiving financial advice, you can book a consultation with an enable.me coach. Costs apply.
*Source: Statistics New Zealand
