Six reasons to begin early retirement planning
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Retirement may still feel far off when you are in your 30s or 40s. You need to put other things first, including saving for a house, getting a car, paying off student loans, and putting money down for your kid's college education. But there are several advantages to beginning a retirement savings early. You can start saving as soon as you start receiving a salary thanks to the fact that many workplaces offer some sort of retirement savings plan. Here are six reasons why starting your retirement planning now is a good idea.
1. Increased return on investment
2. You can choose higher risky investments
3. Earlier retirement
4. Retiring may result in lower housing costs
5. Use employer contributions to your advantage
6. Social Security benefits are not ensured
1. Increased return on investment
Early retirement savings give you more time for your investments to develop and take advantage of compound interest. Compound interest is the interest you receive on your principal amount in addition to any prior earnings or accumulated interest. Over time, this can add up to thousands of dollars. You can use this compound interest calculator to evaluate how effective compound interest can be for retirement planning.
In the example below, a 30-year-old professional making $80,000 a year can amass over $1.5 million by the time she is 65 if she begins depositing 10% of her income through her 401(k) at age 30. (assuming a 3% annual income increase and an average annual return on investments of 6%.)
2. You can choose higher risky investments
Typically, the investments with the highest potential rates of return also have the highest levels of risk. In general, the younger you are, the more risk you can accept with your assets in your 401(k) or other retirement account. This is because you will have more time to make up for any losses. In general, it is best to switch to a more cautious approach as you move closer to retirement.
Riskier decisions can result in bigger potential profits, but they can also cause significant value changes. When putting together your investing portfolio, it's critical to consider your own risk tolerance.
3. Earlier retirement
Although 65 is the typical retirement age, you could prefer to retire earlier. You can choose to retire early once all of your debt has been paid off and you have saved enough money. You might achieve your retirement objective sooner in life if you understand the significance of retirement planning and put an investment strategy into practice.
Many retirees continue to pursue hobbies or new jobs that they weren't able to do while working a 9 to 5 job. More flexibility and freedom in your later years may result from your early commitment to saving for retirement.
4. Retiring may result in lower housing costs
When you retire, you are free from the requirement to commute frequently or live close to your place of employment. More freedom will be given to you in deciding where to live. Real estate is frequently more affordable in little rural villages than in big metropolis. This can allow you to relocate to a less expensive home and finish paying off your mortgage.
5. Use employer contributions to your advantage
Make sure you make adequate 401(k) contributions to fully benefit from your employer's match if they offer to match your contributions. An company might, for instance, offer to match 50% of your 401(k) contributions up to 5% of your pay. Accordingly, your employer would contribute an additional $1,750 to your 401(k) if you make $70,000 a year and contribute $3,500 to it. In essence, this is free money, and over the course of your career, it can mount up significantly. Your retirement savings will increase dramatically if you start making contributions to a 401(k) with an employer match as soon as your employment begins.
6. Social Security benefits are not ensured
Social Security benefits typically amount to $1,500 per month. That might not be enough to support you financially and comfortably during retirement. The program's reserves could be completely spent by 2034, and payouts could be reduced by 22%. You should have your own retirement savings so you aren't dependent on social security, even though this may alter.
For experienced and trusted Rochester Hills Retirement Planning, call Stoney Creek Advisors at (248) 266-2900 for more information.
