The Earlier You Start Investing – The Easier It Is To Reach Your Goals
One of my favourite quotes about investing comes from Warren Buffett, “Someone is sitting in the shade today, because someone planted a tree a long time ago.” You need to plant your investing tree sooner rather than later, so that you too can be sitting in the shade when it’s time to retire.
Alas, many Australian’s have no idea how much they want or need to fund their retirement. It is estimated that over 50% of workers have not tried to calculate how much money they will need to have saved by the time they retire to live comfortably.
How much does the average Australian need at retirement? Are you looking to simply be able to afford the basics. Or are you looking to enjoy the finer things in life when you retire? The answer of course will vary for each individual. However the idea of a $1 million nest egg has often been talked about in the media over the years. That number could now well be much higher when you consider the increases to cost of living over recent years, but let’s stick with the theoretical $1 million for this example.
Now, how do we begin to save to that amount and plant our own investment tree? It doesn’t matter how much money you start with, but it’s important to make a start. By simply starting sooner rather than later, your regular savings could be relatively small. However will build to a larger amount over time. The longer you delay starting your investment strategy, the more you will have to save to achieve the same results.
The earlier you start, the easier it will be to achieve your savings goals due to the power of compounding and investment returns. Many people do no start actively saving for retirement until their 40’s or 50’s. And while this is not too late, the longer you leave it, the more you will have to save to achieve the same results.
The chart on the left shows how much money you would need to save per month to reach $1 million in retirement. The chart on the right shows where the ending balance of $1 million comes from. The green portion is total savings, and the orange portion is total amount of investment earnings, assuming an average return of 7% each year for your investments.
By starting at age 35, you would need to save $855 per month, every month until retirement (age 65) to reach the magical $1 million in your retirement nest egg.
If you started at age 45, the amount you’d need to save per month to achieve the same results increases to $1970. If you waited until 55, your monthly savings would need to be $5846 to achieve the same result. This example illustrates the longer you wait to begin to save, the more you need to save to play ‘catch up’.
Imagine if you had started saving at age 25 where you would only need to save $405 per month to reach that $1 million goal. The 25-year old’s savings is less than one third of the savings required by the 55 year old to reach the same goal – starting early definitely has it’s advantages.
Perhaps you have young adult children or grandchildren who you could encourage to start now, so they don’t have to play catch-up later in life. Or perhaps you yourself would like to start now, so that your retirement goal is closer to your reach.
If you’d like to discuss how to begin investing and saving towards your investment goals, please feel free to reach out to the team at iInvest Trading & Advisory so that we can help you on your saving and investing journey towards retirement.
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