A Few Reasons Early Retirement Planning Is Important
By K. Bridget Schneider, CFP®, CRPC®
What is retirement planning? Basically, it’s a process of determining how much money you’ll need in retirement and the steps to make that happen. You identify future income sources, estimate expenses, implement a savings plan, and manage your investment assets and risks. Sounds easy, right?
Well, maybe it isn’t as easy as it sounds for everyone. Through the years, I have met with some people who avoided this process until they decide to retire. Perhaps their budget was tight as they paid school loans or raised a family, so they put it off until they might have more money. And there have been others whose income was very high, but they procrastinated thinking they could “catch-up” later. Regardless of your age or how much money you have, here are a few reasons early retirement planning is important for everyone.
How Many Years Will I Be Retired?
While none of us know how long we will live, depending on the age you begin retirement it may last a long time. Although your lifespan can depend on physical activity and body size, the Society of Actuaries data suggests that a married, 65-year-old woman has a 50% chance of living to age 90! Great news! It’s entirely possible your retirement could last 25 years or more. Except that means you’ll need more money to continue to enjoy it. The earlier you start retirement planning, the sooner you may reach a level of financial security that allows you to enjoy that retirement.
What if I Retire Early?
An early-age retirement is something many dream about. But even if you plan to work until your full retirement age or longer, those plans can change due to an unexpected event. Perhaps a health issue develops that makes it difficult to continue your chosen career. Or imagine being a few years from retirement and the company you work for goes out of business or your work location is closed. Even if you were offered a new position elsewhere, you may not want to relocate from friends and family at this stage of life.
Whatever the reason for an early retirement, you’ll need to consider how fewer earning years and more retirement years will affect your retirement plan. Those without a plan may find themselves feeling stressed and uncertain about their financial future. But if you have already been planning for retirement, situations like this may only require small adjustments to that plan.
Time – Your Greatest Ally
The earlier you start retirement planning, even if you can only save small amounts, the more time your retirement savings will have to grow. By investing early and staying invested, you may be able to take advantage of compounding. This is when the money you earn from your investments is reinvested for the opportunity to earn even more.
In the example below, notice how saving $300 per month ($3600 per year) grows over time. Assuming an 8% annual growth rate, it took 23 years for the investor to reach 25% of their goal of $1 million for retirement. But it only took 8 more years to reach 50% of that goal. And 8 then more years to reach 100% of that goal. This potential for growth is why time is your greatest ally.
Of course, your actual rate of return and the variability of that return will affect the timeline to reach your financial goal. But those who are on track started with a plan. They took time to really think about what kind of future they wanted and were intentional and focused. They started working on a plan and didn’t let anything get in their way!
The earlier you start your retirement planning, the more time your savings will have to grow and compound. There will be adjustments along the way as your circumstances or goals change. But if you didn’t start early, it’s never too late. Don’t feel like you’ve missed the boat just because you haven’t given it much thought in the past. Any planning you do now will be helpful in the future.
Seeking assistance from a friendly financial guide and ally as you plan for your future can help you feel smart, befriended, and empowered. Be sure to visit our website today or call us at 217-605-8130 to speak with a Certified Financial Planner™ professional. At Connections Financial Advisors, our mission is to help you make more informed decisions to better your financial position and reduce your financial stress.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice.
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