When Should You Start Planning For Retirement?

Any professional financial adviser will tell you what you've already heard elsewhere a thousand times - start saving as early on in your career as possible. Save as much as you can, invest it wisely, and do both consistently. This is, of course, to help you to be financially responsible, and to develop financial security for the future. While this is great advice, it is missing an essential piece. Along with saving and investing, you need to create a financial retirement plan to compliment those efforts. After all, part of what you're saving for is retirement!

A retirement plan is best used by those who are probably no where near even thinking about retirement. That may sound strange, but if you're already aware enough to start saving money, then you're the right age to create a long range plan. Seeing your financial future in black and white is eye opening. It will help you to set realistic goals, show you what you can/should do to achieve them, and serve as a reminder when you need to stay on track. The importance of this can't be overstated.

If you're 30 years old, your retirement plan, and goals, will change as often as your life changes. Career changes, marriage, having children, buying a house and any number of other life events will affect your plan. That's why a good plan is flexible. But without a plan, you'll be flying blind. Your retirement goals will likely not be met, because without a retirement plan you're left just guessing and hoping that things will work out. Unfortunately, that strategy rarely ends well. One of the most important life lessons is to always give yourself options. With a retirement plan you can see your saving, and spending, options. Without one, you don't know what your options are.

Here's an example that's easily seen using a good financial planning tool (this assumes an investment return rate of 5%/year): If you start saving $5,000/year at age 30, and stop saving at age 40 (leaving the money invested), you will have ~$223,000 at age 65.  

If you start saving/investing $5,000/year at age 50, you will have ~$118,000 at age 65.

You can save for 1/3 less time, stop saving altogether, and still end up with almost twice as much because time (and compound interest) is on your side.

Knowing this at age 30 gives you options. Knowing this at age 50 won't help you. Create a financial/retirement plan as soon as you start working. It doesn't matter if it changes, or if you're not sure what the future holds, it will still show you options, and options give you the power to control your future. Always be prepared.

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