When Should You Start Planning For Retirement?

The bigger question is not when should you start planning for retirement, but why haven't you started already?

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, consistently save as much as you can, and invest it wisely in accordance with your risk tolerance. This is, of course, to encourage you to be financially responsible, and to help you to achieve financial security. While this is great advice (though, "save as much as you can" needs clarification), it is missing some essential information. Along with saving and investing, you need to create a financial plan to compliment those efforts. After all, how else will you know how much is really needed to save for a comfortable retirement, based on your specific needs and wants, and what level of returns (and risk) will be needed?

A retirement plan is best used by those who are probably nowhere near even thinking about retirement. That may sound strange, but if you're old enough to have a full time job, then you're the right age to create a long range financial 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 those goals, 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. You don't have to accurately predict the future, but without any plan at all, you'll be flying blind. Your retirement goals will likely not be met, because without a financial plan you don't have well thought out goals in the first place, or specific actions to take. You have, at best, a guess. One of the most important life lessons is to always give yourself options. With a financial plan to guide you, you can see your saving and spending options, and what the outcome of your decisions is likely to be. Without such a plan, you don't even know what your options are.

Here's an example that everyone should be aware of: If you start saving $5,000/year at age 30, earning a 5% rate of return, and stop saving at age 40 (leaving the money invested), you will have ~$255,000 at age 65.
If you start saving $5,000/year at age 50, you will have ~$118,000 at age 65.

You can save for 1/3 less time (and then stop saving), and still end up with more than twice as much because both time and compound interest are on your side. Imagine if you started saving at age 30 and kept on saving after age 40! (Spoiler alert - you would have $500,000.)

Knowing this at age 30 gives you options. Knowing this at age 50 doesn't help nearly as much, but you still have time to make up lost ground (and can help those younger than you to get a head start by sharing this information). If you are late to the party, don't give up. The most important step you can take is still to establish realistic goals, and determine what actions are possible/necessary to reach those goals. If at all possible, take advantage of 401k catch-up contributions (after age 50), and always make sure that you contribute at least enough to your 401k to receive the maximum employer match - never give up free money!

While sooner is better than later, it's never too late to create a financial plan for retirement. Don't have one? Do it now.
You don't need to spend thousands to hire an adviser for this since it's easy to do on your own with a robust financial planning tool (the name of a pretty good one is at the top of the page). It doesn't matter if your plan changes, or if your forecast of what might happen in the future is imprecise, it will still show you what your options are, and options give you the power to control your future. Update your plan as needed, but always be prepared.

So when should you start planning for retirement? If you're reading this and don't already have a financial plan, the time for action is way overdue. Right now is the best time to take control of your finances, understand your options, and make sure that you establish clear steps for achieving financial security. Stop guessing, start planning!

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