Retirement seems a long time away when you’re in your twenties. However, the reality is you need to start thinking about it now. Old age will catch up to you, and unless you’re planning to work until the end, your life will be easier if you have money set aside to fund your own retirement.
1. Our countries are ‘aging’
It’s an uncomfortable truth – many developing nations are ‘aging’, meaning the average age of the population is going up. In most cases it’s due to a low birth rate, longer life spans and a large population of baby boomers who are now at retirement age or older. This puts increasing strain on services for the elderly – aged care, home and community care, health care – and demand raises prices.
Apart from increased demand, the development of amazing new health care technologies means that we can enjoy a higher standard of life and live longer. However, these services also come at a price. Having the money to pay for the services you need, when you need them, can make for a longer, happier, healthier life.
2. There may not be pensions when you retire
It’s becoming increasingly difficult for many Governments around the world to finance an old-age pension. Traditionally, we’d retire and 55 and only live another 10 years or so. That meant we spent 30-40 years contributing taxes to the economy, and only 10 years drawing a pension. Now, we might live another 30 or 40 years – in fact we could conceivably spend more time on an old age pension than we do working!
As a result, we’re being encouraged to finance our own retirements. If you don’t start your own savings, the alternative could be working until the end of your life, relying on family and friends to support you, or living in poverty in your old age.
3. You’ll probably want to do things when you retire
With retirement comes free time – and you’ll want to participate in activities to fill that time. Some of them are cheap – volunteering, reading, writing, exercising – but hobbies and travel can be very expensive. Even visiting family and friends, or having the money to indulge your grandkids, can cost a lot. Having the funds to pursue interests and experiences after you retire can make your twilight years far more interesting and enjoyable.
4. A little, saved often, is easy
Get into the habit of putting money away for retirement from a young age. Have it deducted directly from your wage, then invest it each time you have enough saved. Add some extra into your 401(k) or superannuation account and benefit from tax deferments and lower tax rates! You’d be surprised how quickly it can add up. Factor your savings into your budget, save small amounts regularly, and you’ll find your savings will put minimum stress on your finances.
5. The miracle of compounding interest
Compounding interest is the extra bonus for saving from a young age. A 10% return, per annum, will double your money in 7 years! That means if you invest $1,000 when you’re 20, then let compounding interest for you, you’ll have $32,000 by the time you’re 55! You’ll need to invest judiciously to get a decent return and inflation will decrease the ‘real’ value of your $32k in the future, but having your money working for you is a real advantage in the long run.
The bottom line
Starting you retirement planning early, saving from an early age, and being consistent throughout your life, will help you build a solid financial foundation for your own old age and retirement.
William Cowie is part of the team at Inspire Education, one of Australia’s leading providers of aged care courses. He would like to retire in his old age and indulge in his hobbies of reading, fishing and tinkering with computers.
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Category: Money Basics