Five Retirement Mistakes You Can't Afford To Make: Mistake #4
Mistake #4: Not Starting Early Enough / Waiting Too Long
Earlier in this piece, I noted that “being able to retire” was a financial goal shared by just about every client I’ve ever worked with. Even a recent college graduate in their first job has some understanding of the fact that while going to work each day may be a major activity in their new life, it is not something that they hope to do for the remainder of their life! Very few people have “die at my desk” as one of their life goals. And if you do have that as your goal, you should be prepared for the eventuality that your mind may change as you get closer and closer to realizing that goal.
If a 25 year old were to save $6,000 per year - $500 per month - into an investment earning 6%, they would have accumulated just over $990,000 by the time they turn 65. On the other hand, if you wait until you turn 50 to start saving, you could put away $36,000 per year - $3,000 per month(!) – into that same investment earning 6%, and still not catch up to that frugal 25 year-old, as you would have only $924,000 accumulated.
Now, I know what you’re thinking. “Why is Jesse making me feel bad – I can’t go back to my 20s and start saving.” And that’s true. But you CAN start today, no matter how old you are. And you can share this mistake with you kids, grand-kids, or any other young person you might know, and make sure that they understand the value of starting to save for retirement while they are still young.
That said, what can you do TODAY? Well, the sooner you start planning for your retirement, the more time you have to figure out what is realistic, and to make some changes. If you know that you are only going to be able to live on $6,500 per month in retirement but today you are spending $12,000 per month, there is no time like the present to start determining what expenses you are most able to cut back. The sooner you get started, the more time you have to get used to the changes before you have no choice – and you’ll also have the added benefit of being able to save more now!
How do you figure out how much monthly spending you can afford in retirement? Well, that’s all a part of your retirement income plan. It needs to take into account your Social Security benefits (which you’ve done the analysis to maximize, right?), any pensions, 401(k) or other employer sponsored plans, IRAs, annuities, and savings. And you need to project out all of your spending and investment returns over the whole of your retirement. It’s a big job, but not one that you can afford to put off.
