Retirement Planning - The Cost of Waiting


Most people have long–term goals: buying a home, starting a business, sending the kids to college, enjoying a comfortable retirement. But too often they delay taking the steps necessary to turn their dreams into realities.

In today's fast–paced world, many people put off important decisions until another day. Unfortunately, by the time they realize the urgent need to save money, it's often too late to fully realize those goals.

There are plenty of excuses for not setting financial goals: "I don't understand investing." "I don't have the time to plan." "I can't afford to invest." The truth of the matter is, you can't afford to delay.

Time Is on Your Side

Fortunately, early planning can help you maximize the power of time and reach your financial goals. It's simple: The sooner you begin to save for your future financial needs, the more wealth you can accumulate.

Although the idea is straightforward and logical, most people fail to recognize the enormous increase in value that can result from beginning to save early. The best way to demonstrate the power of time is by way of example. Let's look at the different approaches to investing taken by twin brothers, Ken and Ray.

Ken Started to Save Early

Looking to build a large nest egg for his retirement, Ken chose to invest $1,000 per year in an Individual Retirement Annuity (an IRA funded by an annuity), starting at age 30. He continued his payments for 10 years until age 40, earning an average of 6% per year on his investments.1 At age 40, he stopped contributing to the IRA, but — and here's the key — he left his $11,000 of contributions in the account, plus earnings, until retirement at age 65.

Ray Started to Save Late

Ray, the second twin, was also a bright guy who saw the need to put money away for his retirement. But he was a bit of a procrastinator and didn't begin implementing his investment plan until he was 45. At that point he began investing $1,000 a year in an IRA. He also averaged a 6% annual return, but continued to make $1,000 investments for 20 years until he retired at age 65. His contributions over the years totaled $20,000.

The Dramatic Difference Compound Interest Can Make

Given the fact that Ray contributed $9,000 more than Ken, you might expect that Ray would have a significantly greater total for retirement at age 65. Surprisingly, just the opposite is true.

Assuming the tax–deferred IRA of each twin earned 6% a year, the account balance for Ken at age 65 would be $68,117, while Ray would have only $38,993. The hypothetical chart vividly illustrates the sizable difference in the accumulated wealth of the brothers.

"Earnings Earn Earnings"

Ray was on the right track. He invested steadily and wisely, earning good returns. But he made a big mistake: he got a late start. So, though he invested almost twice the amount his brother Ken did, he had less money to enjoy at retirement.

Now look at his twin's experience. By getting an earlier start, Ken benefited from 15 more years of compounded interest. Left to accumulate in his account, the earnings from his early years earned additional returns.

It's Never Too Early for You to Start Saving Although today's responsibilities may take up most of your time and attention, it's important to consider what you want to accomplish in the future:

  • With a growing family, you may need to buy your first home — or one with more space.
  • You may want to launch your own business, which could require heavy start–up expenses.
  • With college tuition on the rise, you may be facing another big expense when your children are ready for higher education.
  • You may need more money to support the life style you want in retirement — which may last 20 or 30 years or more.

Make Time Your Ally

Let time work to your advantage, beginning now. Protect your family. Plan for the future. Preserve your assets. Prepare wisely for retirement.

For help with identifying and accomplishing such financial goals, contact your Representative today.

1 Six percent is for illustrative purposes only and is not intended to predict or guarantee the results of any security product.

This material is being provided for informational purposes only. Neither EMA Financial and Insurance Services nor its agents provide legal, tax or accounting advice. Please contact your own advisors for legal, tax and accounting advice.


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