The earlier you start your retirement planning, the longer you have to achieve your goals and the less expensive it will be for you. For example, if you plan to retire at age 65, and you only start thinking about a retirement plan at age 60, you only have 5 years to start saving for retirement. However, if you are just starting out in a career, and you are in your twenties, you have 40 or more years to start saving for retirement. Obviously, you have much more time to start saving for retirement. We started investing in mutual funds from American Funds. Even though we may change or move our money from one fund to another, it continues to work for us.
And don’t confuse retirement savings with a 529 Savings Account. The 529 Plans are designed to help families save for college costs. These are tax-free accounts specifically designed for educational expenses and if you try to use them for retirement, you will be assessed a penalty.
Most people erroneously think that the time to start Retirement Planning is once they approach their golden years. This is wrong! The opposite is in fact, true! It is simple math to see why it is better to start investing for retirement at the youngest age possible. Let’s take a simple formula to see what happens. Let’s start with 2 people with only $1,000 to invest. Elmer is 60 years old and has 10 years until retirement. Johnny is fresh out of school and won’t retire for another 40 years. Both put their $1000 in a mutual fund that averages a meager 5% every year.
At the end of the period, Elmer would have earned an addition $600 for a total of $1629. Not much of a retirement! But Johnny would have over $7000! And if each adds $1000 every year for the term, at the end Elmer would have $14,835 and Johnny would have a whopping $134,000!
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