Regardless of whether you’re one of the many people who commit to new resolutions as a new year beckons, there’s something to be said for evaluating certain aspects of our lives from time to time. A new year’s arrival is as good a time as any to think about your goals and evaluate any ongoing strategies to see how well they’re working for you. With 2017 finally here, it might be a great time to give more thought to your retirement goals, especially if you’ve been putting off retirement planning to focus on other priorities. For a variety of reasons, early retirement planning can be essential for success.
Is it Ever Too Early to Start Planning?
Many young people put off retirement planning because those senior years just seem so far away. Most of us just assume that there’ll be plenty of time to begin to save retirement later in life – like after we get married, have children, buy a home, or get further along in our careers. Before we know it, we’re middle-aged, neck-deep in debt, and struggling to find any extra money in the budget for savings. If that sounds like a familiar refrain, there’s a reason for that familiarity. Surveys suggest that a majority of American adults have less than $10,000 in retirement savings.
That fact alone should shock all of us. By some estimates, you’ll need roughly 80% of one year’s current salary to pay for one year of retirement. If you’re one of the many whose current retirement savings amount to less than $10,000, then you’re not even prepared to finance that first year of retirement. Without the savings you’ll need to retire properly, you could be left to survive on nothing more than your meager Social Security benefits. Obviously, that’s probably not how you imagined your retirement playing out.
With those facts in mind, it should be clear that it’s almost never too early to begin your retirement planning effort. When you’re young, you have the advantage of fewer financial responsibilities. After all, most young people don’t have expensive mortgages, childcare expenses, or the other major costs that often arrive in the average person’s thirties or even forties. As a result, many of us can save more money toward retirement when we’re younger than if we wait until we’re older.
The Advantages of an Early Start
There are also some very clear benefits that can be enjoyed when you start planning early. To understand these advantages, it’s important to have some insight into why retirement planning works at all. It all comes down to the power of compound interest and growth over time. When you’re saving for retirement using a 401(k) plan or IRA, the money you contribute to your plan continues to grow over time thanks to that compounding principle. As the account continues to grow, the account earnings generate even more earnings over time – allowing your savings and investments to grow rapidly over time.
That time factor is critically important, since your money will grow to even larger amounts as more time passes. That means that an early start can provide you with a far greater amount of time than if you start later in life. If you begin retirement planning in your forties, you might have only two decades of retirement plan growth before you’re ready to leave the workforce. When you begin that planning in your twenties, however, you can double the amount of time your plan is at work. Of course, the power of compounding interest means that the amount of growth your plan enjoys will more than double over time.
Finally, it’s vital to understand that many retirement vehicles – including 401(k) plans and IRAs – allow you to save and invest money on a tax-deferred basis. That means that you contribute money to those accounts before it’s taxed. That enables you to assign more money to your retirement plan even as you reduce your current overall tax liability. Granted, you will need to pay taxes on that money when you eventually start taking retirement distributions, but the added growth you can enjoy over time can easily work to your long-term advantage.
Retirement Planning Affects Other Planning Too
Some people think of their retirement planning as some independent, segmented part of their overall financial plan. In a sense, that can be an accurate way to look at these plans. The broader view is more accurate though, since your retirement plan plays a critical role in your other planning needs. For example, if you want to have long-term care planning, your retirement planning should be taken into consideration to ensure that your assets are properly arranged to meet your goals. If you want to leave a legacy behind to your loved ones, then you’ll need to consider your retirement plan as you’re constructing your estate plan.
Basically, all your major financial and life planning goals should be made with your retirement plan in mind. It’s difficult to create an estate plan that leaves wealth behind to loved ones if you aren’t considering the source of that wealth – and your retirement plan could be a major factor in determining the size of your estate in your later years. Early retirement planning can thus be useful for filling in some of the “gaps” that might otherwise appear in your estate plan, since this planning can help you to have more insight into the type of resources you could have at the end of your life.
Make Sense of It All
Despite the need to begin planning early, it can sometimes be difficult to know where to start or how to coordinate that plan with other long-term planning needs. At Kulas & Crawford, our early retirement planning attorneys can provide you with the assistance you need to make sense of its all and make your retirement goals a reality. We’ll work with you to evaluate your retirement needs, find a retirement strategy that’s right for your situation, and put you on a path to retirement success. If you’re ready to learn more about how early planning can achieve your retirement goals, contact us online or call us today at (772) 398-0720.