In These Tough Times, Can Retirement Planning Be Delayed?

With tough economic times affecting everyone, and credit difficult to come by, it is easy to get swept up in the “now” and forget about the “future”, namely our retirement.  However, there is no time like the present to perform a little financial planning and realize that regular savings, put away for the long-term, is the only way to ensure an enjoyable and dignified lifetime in our later years.

Time is not on your side when you put off saving too long for your future well being.  Earning potential declines dramatically with age.  We are still a young-minded society.  However, average lifetimes are increasing, as are the costs for generally pleasing lifestyles.  The medical industry also does not seem capable of reducing its growing cost burden, regardless of the promises of Obamacare.  Social Security payments may only constitute 40% of your necessary retirement income, so you will need to bolster those payments with earnings from additional savings that you must begin to make now.  The “Law of Compounding Interest” will not desert you, but you must deploy it for the “multiplier” effects in the table below:

For example, $10,000 invested at 4% for 30 years will result in $32,000.  At 10%, the retirement nest egg could be $174,000 in 30 years.  Ordinary savings accounts do not pay these rates today, but stock market returns have been measured over medium and long-term periods to be roughly 10% since 1926.  Yes, these rates of return are before taxes, but Congress created Individual Retirement Accounts (IRA’s) to eliminate current tax impacts.  A little financial planning at the outset will guide our next steps.

Financial planning starts with a family budget, and the top line of your budget right after your net income should be the amount you will save on a periodic basis.  If your employer offers a 401(K) savings plan, do take advantage of every aspect of that plan.  Deduct those amounts from your savings target.  Do you have credit card debt?  The interest rates on these programs will far exceed your earnings potential on savings.  Make an attempt to pay down these balances, and then you can begin making real contributions to your retirement program.

After accumulating six months of net income for an emergency fund, you are finally ready to make decisions regarding where to put your capital for the long-term.  If you are like most other people consumed by work and family, you have little time left over to study the stock market, review company financial reports, or find a forex broker if currency trading is your forte.  The key to prudent investing in the stock market is diversification.  Diversification simply means not putting all of your eggs in one basket.  Professionally managed funds generally place a limit of 5% on the investment in any one specific entity.  The best way to achieve good diversification and minimize overall risk in your personal portfolio is through the use of Exchange Traded Funds (ETF’s).

Fund choices are plentiful.  Some mimic the S&P 500 or mirror the performance of the NASDAQ 100.  Your investment broker can advise you on the best choice to match your investment style and the best time to buy shares in the market during current business cycles.  Follow these disciplines, and your retirement planning will take care of itself over the long haul.  Delayed gratification has its own rewards.

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