WHEN SHOULD I START PLANNING FOR RETIREMENT?

Knowing how much you should save for retirement is critical. But what if you are late getting started? The longer you delay, the shorter the time that compound interest can do its magic on your savings. It is typically recommended that you save 15% of your take-home pay each year.


Money in the bank isn’t compounding. Therefore you should invest your money in an age appropriate portfolio, such as an Approved Retirement Scheme and rebalance regularly. Make sure your investment choices have low fees and expenses.

Assuming you start at age 25, you should have sufficient assets to retire at age 65 after 40 years. Short term market volatility should not deter long term investing.

Beginning at age 25 and retiring at 65, the appropriate savings rate is 15.4%. But starting just five years earlier, you could reach the same goal by saving just 11.1% each year. Starting early is more important than saving more.


Deferred consumption is the definition of capital. When a family defers consuming and saves and invests instead, they put that capital to work. Having more money invested early means their investments are making money and adding to their savings, which reduces the amount they need to add. Money makes money.


Starting at age 15 is even better. For students who work summers and start saving, the safe lifetime savings rate is only 8.04%. Starting early is so beneficial that you can lower the rate you need to save each year. Thus every sage investor suggests beginning as young as possible. The same is true of retirement planning. The later you start in life, the higher the percentage of your lifestyle you must save. Starting at age 25 you should save 15.4% of your lifestyle each year to reach financial independence by age 65. For every year you delay, add about 1% in your 20s and 2% in your 30s.

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Forbes