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Why is it Important to Start Making Retirement Plans Early in Life?

Author Bio
Steven Neeley, CFP®

is a retirement planning expert and financial advisor with Fortress Capital Advisors, a fee-only, fiduciary registered investment advisor offering retirement planning and wealth management services in the State of Indiana and other jurisdictions where registered or exempted. Main office: 418 Oak Dr., Carmel, IN 46032. Tel: (317) 210-3727.

Steven Neeley, CFP®

is a retirement planning expert and financial advisor with Fortress Capital Advisors, a fee-only, fiduciary registered investment advisor offering retirement planning and wealth management services in the State of Indiana and other jurisdictions where registered or exempted. Main office: 418 Oak Dr., Carmel, IN 46032. Tel: (317) 210-3727.

Table of Contents

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Introduction

Let’s be real. Why is it important to start making retirement plans early in life? You’re in the prime of your life. You’re building your career, maybe even starting a family. The word ‘retirement’ seems to belong in a different galaxy. But here’s the deal: retirement planning isn’t some distant star—it should be right here on your doorstep. And the earlier you welcome it in, the better. Let’s explore why.

Why Is Planning for Retirement Early So Important?

Now you might be wondering, “Why should I plan for my grey days when I’m still in my
colorful years?” Well, let me introduce you to our secret weapon: compound interest. In
the world of finance, this little gem is referred to as ‘interest on interest’. It means that
the savings you accumulate now will generate earnings, and those earnings will
produce their own earnings, and so on. This snowball effect can make your savings
grow exponentially over time.

Think of it like planting a tree. The earlier you plant it, the longer it has to grow, and the
more fruits you’ll be able to enjoy down the line. But what if you don’t plant this tree until
much later? Well, it’s going to be a scrawny little thing, barely able to produce enough
fruits to make a decent pie. Starting early makes the difference between a retirement of
comfort and relaxation, and a retirement filled with stress and worry.

When Can You Retire?

The answer to this is as broad as the sky. In a perfect world, you could retire whenever
you feel like it—as long as your bank account agrees. But let’s get real. Most of us are
bound by certain realities. In the U.S., people typically retire around 65-67, which
coincides with the full retirement age for Social Security benefits.

However, relying solely on Social Security could be like trying to sail a ship with a tiny
sail—you’re not going to get very far. Most experts recommend having additional
savings to supplement these benefits. This way, you don’t just scrape by, but can live
comfortably and do the things you love.

What Are the First Steps of Retirement Planning?

Alright, let’s roll up our sleeves and get into the nitty-gritty.

1. Know When to Start Retirement Planning

The best time to start? It’s always “right now.” Even if your savings begin as a
humble trickle, they can grow into a roaring river with time. Each paycheck is an
opportunity to grow your retirement fund. And as you earn more, you can
increase the amount you set aside for retirement.

2. Determine Your Retirement Goals

Your retirement is your canvas, and you get to paint it. Dreaming of retiring in a
beachfront property? Or maybe traveling the world is more your speed. Jot down
your retirement vision and use it as a compass to guide your saving habits.
Remember, the more ambitious your goals, the more you need to save.

Common Mistakes to Avoid in Retirement Planning

Just like trying to bake a soufflé for the first time, retirement planning comes with its
share of possible pitfalls. First and foremost, remember Social Security is just a piece of
the retirement pie—it can’t feed you on its own.

Another common trap is the “I’ll save later” mindset. Saving might be less appealing
than, say, buying that shiny new gadget or going on that lavish vacation. But always
prioritize your future self. Starting early means more growth for your money, and that’s a
decision you’ll thank yourself for later.

One method we like is commonly referred to as “Pay Yourself First”. In this approach,
you prioritize saving a specific percentage or amount of your income before allocating
money to other expenses or discretionary spending. For example, you might “pay”
yourself the first 25% of your earnings while saving the remaining 75%.

By setting aside a predetermined portion for savings right at the beginning, you ensure
that you are saving consistently and building your savings effectively. This method is
widely recommended by financial experts as a way to develop a healthy savings habit
and work towards achieving your financial goals.

Selecting a Financial Planner for Retirement Planning

Feeling a bit overwhelmed by all this? You’re not alone. If sorting through finances feels
like trying to read hieroglyphics, consider hiring a financial planner. They’re like the
Rosetta Stone for your retirement plan—translating complex financial language into
understandable, actionable steps.

Make sure your planner is a fiduciary, which means they’re legally obligated to act in
your best interest. They can help guide you through the intricacies of retirement
planning and ensure you’re on the right path.

FAQ’s & Conclusion

A common rule of thumb is to aim to replace 70%-80% of your pre-retirement income. However, the exact amount depends on your personal goals and lifestyle.
Better late than never. Start saving now, cut back on non-essential expenses, and consider working a bit longer if possible.
401(k)s and Individual Retirement Accounts (IRAs) are popular choices in the U.S. Both offer tax advantages that can help your savings grow more efficiently. Another type of retirement account to consider is a Roth IRA. Unlike a traditional IRA, contributions to a Roth IRA are after tax, but the big benefit is that as long as you have had the account for 5 years and are over 59.5, you will not pay taxes on the withdrawal of principal or earnings. A great benefit!
As a rule, review your plan at least once a year or whenever you experience a major life change like getting married, having a child, or changing jobs.

In a nutshell, it’s never too early—or too late—to start planning for retirement. The
sooner you start, the more at ease your retirement will be. Yes, it can seem like a
daunting task, like standing at the base of a mountain. But remember, even the highest
peaks are climbed one step at a time.

Don’t hesitate to reach out if you’ve got more questions. We’re here to guide you on this
journey. Here’s to a future filled with sunny beaches, adventurous travels, or simply, the
peace and comfort of knowing you’re financially secure. Remember, every step you take
today brings that dream retirement closer to reality. Cheers to that!

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