From bad investments to the wrong savings accounts, Americans can make a variety of mistakes when planning for retirement.
But too many have fallen victim to one mistake in particular, according to one expert.
“Every client I want they started early,” Katharine George, a financial advisor at Wealthstream Advisors, said in an appearance on Yahoo Finance Live (video above). “Compounding – so that means starting very early and growing your money, that’s the most powerful tool.”
Here’s why starting early is important. According to the government’s compound interest calculator, with an initial investment of $20 and a monthly contribution of $40, investors can make more than $38,000 in 30 years, assuming a 6% rate of return with 3% difference.
“Wishing they started saving earlier and more often is a regret many investors face,” said Randy Bruns, founder of financial planning firm Model Wealth. [number of] years for compounding – the same if you have minimal financial capital.”
When it comes to calculating the ideal “retirement number,” George says things can get complicated. He explains that the right number can depend heavily on factors such as an individual’s risk profile, their stock-to-bonds mix, and living expenses. He noted that health care costs grow at a higher rate than other living expenses.
“There are all kinds of rules of thumb out there. And I don’t like any of them. It’s very difficult because everyone’s personal situation is very different,” he said.
George said Americans should be sure not only to plan early but also advise them to check with a professional 5-10 years before retirement. He explains that a financial planner may tell them they need to save more than they think, if they have time to adjust accordingly.
Read more: Money market account vs. CD: Which is better for saving?
“So really working with a professional who has a knowledge base of how to grow your assets, how to think about inflation, and how you can increase your lifestyle even from a tax point of view. “You know, money in a retirement account is very different from money in a taxable account,” he said.
Investors who wait too long to prepare for retirement risk finding themselves forced to work when they’re older, said Jordan Benold of Benold Financial Planning.
“Working at a certain level is not only a mental but a physical trait. There comes a time when your body can no longer do the things it used to do, and having a nest egg to fall back on for income is very important, ” he said. “Time is the best asset anyone can invest in. It’s almost the only guaranteed way to get the right amount of retirement money you need.”
Waiting too long to plan for retirement can mean enduring a major lifestyle downgrade.
“These are people who have hit retirement or are already in retirement who have to make more difficult decisions such as downsizing their home or reducing expenses that they may wish they had started a little earlier to plan,” said George. “So really think about having a plan before you hit retirement age.”
If you’re a late starter and still haven’t, it’s time to correct course and sacrifice more of your down payment for the future, says Peter T. Palion, a financial advisor from East Norwich NY
“If you start at say 30 or 35 … you probably want to shoot for a fairly high contribution level to make up for lost time so that, at the end of the day when you reach your age in retirement, you don’t have less money than if you started earlier,” Palion said.
In more dire circumstances, older Americans who don’t have enough saved up can use reverse mortgages or a home equity conversion line of credit as a possible “lifeboat,” Brandon said. Gibson from Gibson Wealth Management
“There is some level of retirement planning that can be done in any situation,” he said.
But in the end, nothing beats planning ahead, according to Brandon R. Opre from Trust Tree Financial.
“The plan will evolve and no doubt change over time, but you have to have goals and something to do,” said Opre. “The sooner people create this vision, the better they will do and the more confident they will be knowing they have taken steps to save a nest egg that should support them in retirement.”
Dylan Croll is a reporter for Yahoo Finance.
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