TIME IS MONEY

Saving for retirement has taken a back seat to other items in your budget for far too long. You may be waiting for the economy to recover, feel you don’t have enough money to save, or have simply decided to wait until you are “older”. Although planning for retirement can seem daunting, you will find relief in knowing that an early start is one of the most successful strategies. By putting time on your side, you increase the number of years your money has to grow and decrease the monthly amount you’ll need to set aside to secure a comfortable nest egg.

Let’s look at it in action. If you had a choice of receiving $100,000 toward your retirement today or a penny that doubled for 30 years, which would you choose? Most would choose the $100,000 and miss out on a whopping $10.7 million.
                                               Grow Penny Grow
                                    Years Interest Earned          Your Balance
                                    1          $0.01                           $0.02
                                    2          $0.02                           $0.04
                                    3          $0.04                           $0.08
                                    4          $0.08                           $0.16
                                    5          $0.16                           $0.32
                                    10        $5.12                           $10.24
                                    15        $163.84                       $327.68
                                    20        $5,242.88                    $10,485.76
                                    25        $167,772.16                $335,544.32
                                    30        $5,368,708.80             $10,737,417.0

Although financial institutes don’t offer an annual percentage rate of 100%, the above example illustrates the power of compound interest. Compound interest is the concept of earning interest on top of interest. It’s the reason a penny can grow to ten million dollars without another cent being added to the account. Each year the dollar amount of interest earned increases in response to a growing balance. Without compounding, the account would have only gained $0.01 a year and grown to a measly $0.30.

Getting a head start on savings will also lower your monthly retirement bill making it easier to fit into your budget. Imagine you discover by using a retirement calculator that you’ll need $500,000 to retire at 65. If you start saving at age 25 your monthly commitment would be $78 to achieve your goal, if you wait until you are 35 that number increases to $219. That extra $141 a month could be used to save for a house, pay off debt or take a vacation. What you use the money for is insignificant to the high price you pay for procrastinating.

Now that you’re clear nothing can replace the rewards of starting early, here are three things to remember when socking away money for retirement:

Maintain a positive attitude

Don’t look at saving as a burden. Focus on how you’ll feel once you’ve reached your goal and take pride in knowing you are taking the necessary steps to plan for your tomorrow today.

Perform Checkups

Examine your progress at least twice a year. Make sure you’re on track to retire at your desired age. Verify your money will last throughout retirement and confirm you’ll be able to afford the lifestyle you want during retirement. To help with your examination work with a financial advisor or try one of the free retirement calculators on bankrate.com.

Keep a long-term perspective

Sometimes you’ll look at your balance and feel you’ll never reach your goal. You’ll come up with a million and one reasons to withdraw your money. DON’T DO IT! Remember you can only replace missed time with more money and who’s signing up for that?

We must be proactive in planning our financial future. With the cost of living increases, staggering health care costs and a troubled social security system, we must partner with time to accumulate an adequate retirement fund.