Over the course of history, there have been many advances that have improved life for the human race- more than I will attempt to review here. The one code however that all of the brilliant minds in the world have never been able to crack is how to stop, or reverse time. Time inevitably marches forward, and its march is evident in many areas of our lives, including saving and investing for the future.
According to a recent survey of 1,100 U.S. retirees between the ages of 55 and 80 conducted by the Employee Benefits Research Institute, 70% of the respondents said they wished they had started saving sooner and invested more. When looking at more than just investing, nearly half (49%) of those surveyed said they wish they would have started planning for retirement earlier.
It seems that most of us are familiar with the concept of compound interest, and how it can potentially make a substantial impact on one’s ability working towards their financial goals. But just to help emphasize my point, here is a quick example to consider below:
- Investor A: deposits $10,000 today, with $100 monthly contributions over the next 30 years. At an 8% annualized rate of return, their account would be worth approximately $236,566 in 30 years.
- Investor B: deposits $10,000 today, with $100 monthly contributions over the next 20 years. At an 8% annualized rate of return, their account would be worth approximately $101,524 in 20 years.
- Investor C: deposits $10,000 today, with $100 monthly contributions over the next 10 years. At an 8% annualized rate of return, their account would be worth approximately $38,973 in 10 years.
These examples are hypothetical only, and do not represent the actual performance of any particular investments. Investments in securities do not offer a fixed rate of return. Principal, yield and/or share price will fluctuate with changes in market conditions and when sold or redeemed, you may receive more or less than originally invested.
Source for Above Calculations: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator
https://www.investopedia.com/terms/c/cagr.asp
For Investor B, who started 10 years after Investor A, to reach a similar level of savings as Investor A, they would have had to increase their monthly savings up to approximately $346 per month for 20 years; Investor C would have had to increase their monthly savings up to $1,235 per month for 10 years. For many U.S. households, having to increase their monthly savings so dramatically in order to play catch up with their retirement accounts, is a difficult task.
One question I am frequently asked by clients (especially brand-new ones or referrals) who have yet to reach retirement is, “am I saving enough to be on track to retire?” Which is a great question. To which I normally reply with something like, “we need to build a custom plan, that defines what your retirement and future goals are, in order to help us answer that question.”
In the Employee Benefits Research Institute survey cited earlier, the data found that only 40% of respondents had a defined, written down financial plan. Of those 40% who had written down a plan, 65% had worked with a financial planner. And that group was the most confident in their past financial habits before retirement that led them into a better financial situation today.
Our team at Impel Wealth Management loves having the opportunity to serve our clients every day as they pursue their financial goals and dreams. If there is a family member, friend, or colleague who you feel might benefit from having a financial plan created for them sooner rather than later, we would love to have the opportunity to serve them too, as we all keep Moving Life Forward together.