SECTION 5
Did you know that people spend more time planning for their annual vacation, than planning for their retirement...
Ideally one should start saving for retirement at age 25 or when he or she starts employment. When thinking about retirement or some long term financial need, we always tend to think in terms of years.
For Example: If you are salaried and of 25 years of age and you would like to retire at age 60. How much time you reckon you have to save for your retirement?
If your answer is 35 years, it is mathematically correct, but practically do you really have 35 years...
Think about it, if you are salaried, and you are paid once in a month, 12 times in a year; and 420 times in 35 years, you have 420 salaries from which you can save for your retirement and not 35 years.
So you actually have 420 months or 420 chances to save for your retirement...
The earlier you start the more opportunities you give your self the later you start the lesser the number of opportunities. Also if you start early you are giving enough time for your money to compound and grow.
“Compound interest is the eighth wonder of the world. He who understands, earns it ... he who doesn't ... pays it.” Albert Einstein
To be able to take advantage of the power of compounding, you should give your investment more time, the longer you remain invested in, larger the number of compounding effect on your investment.
The power of compounding does not care if you are rich or poor, it helps all of us in the same may, because it depends on time, the unique and common resource we all have...
The earlier we put it to work, better the results.
If you ask anyone who is retired or is expecting to retire, he will surely tell you that he would have had more money if he had started saving for retirement earlier than he did.
The following audio-clip of Anthony Robbins from youtube, wonderfully explains the power of compounding and the importance of starting early.
Now let’s compare the following investment choices of Susan, Bill and Chris towards their Retirement;
Susan is 25 years old, and she invests $5,000 for 10 years towards her retirement and remains invested till her retirement age of 65 (Total Investment $50,000)
Bill is 35 years old and he invests $5,000 for 35 years till his retirement age of 65 (Total Investment $150,000)
Chris is 25 years old, and he invests $5,000 for 40 years till his retirement age of 65 (Total investment $200,000)
Susan in-spite of investing the least, has largely benefited by the Power of Compounding, retiring with a bigger retirement kitty than Bill, who although invested a higher amount had to retire with lesser money than Susan.
Chris on the other hand, has the biggest retirement savings, as he started early, and continued to save and invest throughout his earning life, enabling him to afford a better retirement than Susan and Bill.
The difference between Susan and Bill is a staggering $189,000, inspite of Susan, having invested $ 100,000 less than Bill. By starting 10 years earlier than Bill, Susan gave her investment more time to grow, more compounding cycles. . The lesson learnt is “Starting late on investing is very costly”
Getting started is what is important. If you sit around forever waiting to perfect your investment style, you’ll never get started and miss out on the power of compounding over the years.
Click The Power of Compounding – Learn how it multiplies your Money to view an amazing video.
THE LONGER YOU DELAY THE LESS LIKELY YOU WILL START
Each year that you delay in getting your investment started, puts you behind your retirement run rate.
As in One-day Cricket if you are chasing a steep target, you cannot wait for the slog overs to start scoring, you have to keep the score board ticking with the ones and twos, and an occasional boundary.
Every year which goes past without investing, will put more pressure on you and at some point you are more likely to give up the chase.
Even if you are playing from behind, getting started to invest at any time is a wise decision.
So what are you waiting for, talk to your financial coach / advisor to start investing for your retirement.