When you’re just getting started in life, retirement seems an incredibly long time away.
If you’re thinking about money, you’re probably worrying more about how you can save the money for a house deposit, or to start a family in the next few years… But the reality is, if you don’t do any retirement planning when you’re young, you might be doing yourself a huge disservice.
Thanks to the power of compounding interest, the money you save when you’re young is set to work hard for you throughout your life.
For example, if you were to save $5,000 a year between the age of 18 and 28, then stop and never put another cent in your retirement savings fund, you could still end up with a higher balance than someone who saved for 30 years from age 30.
Over time, your returns are likely to receive their own returns, which may then attract returns the next year… and repeat.
Milford Asset Management offered an example where people started with $10,000 and made 10 per cent returns every year after fees and tax. Even if they never saved anything more, after 20 years, they would end up with $67,275 in their account.
By the last year, over $6,000 of the returns earnt would be purely from compounding.
Using your asset allocation is another way to power yourself ahead – and the earlier you start, the easier it can be.
When you are young, and a long way from retirement, you have the ability to maximise your returns by putting your entire savings pool into a high-risk, high-return investment vehicle.
It might mean having to steel yourself through a few investment downturns, but overall you are likely to do better than someone who chose a more conservative option.
Start saving for your retirement young and it may become a good habit for life.
Setting up your retirement savings from your very first paycheque, and then tweaking it to put more and more aside as your income grows, can be a much painless proposition than trying to start saving large chunks of money later in life.
One of the reasons people find it daunting to save for a comfortable retirement is that the sums needed are often quite large. But by starting early, you shouldn’t need that much effort.
The bottom line? If you wait until you are 40 or 50 to start thinking seriously about retirement, you might miss out on your chance to give yourself a step up. So take the easy option – start now. Your future self will thank you.
Talk to us today about how you can get on the right track, right now. We can demystify what’s needed to save for a comfortable retirement.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current development or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek advice from a financial adviser.