Retirement may seem like a long way away. For many in the workforce, this is a horizon decades into the future and something that feels only partially important. Others are quickly nearing that age when retirement funds become available and the option to leave work behind continually looks more attractive. Retirement savings is best done in a constant pattern from an early age all the way through your final paycheck. It’s incredibly important, especially for young professionals, to keep retirement planning in the back of your minds and constantly revisit your exit strategy.
Start Early
There is no way around it. Saving for retirement must begin early – as early as you possibly can. At 16-years-old, most Americans are eligible to work, and by eighteen you have either left the classroom behind to forge ahead on your career path or are engaging in higher education in order to train for a particular career. This is the best time to begin. Time is an investor’s greatest asset as compounding interest builds up over the decades you put in at the office. This is the principle of interest on interest.
The capital your saved money generates is as real and tangible as the cash you placed in the account in the first place. So it earns interest just like your principal investment. Ideally, your money will double every seven years. This means that with an early and intelligent savings strategy, you should see six or more doubling events – that also balloon regular deposits and earned interest – from the time you enter the workforce to the time you leave it. The growth potential of your savings is cut by a huge margin for every year you wait to begin investing in your future.
Be aggressive in the early years.
An aggressive strategy in the market is great for younger investors. Because your portfolio has decades to take advantage of explosive market recovery, your investments today can weather the collapse of riskier investments and short term stock corrections. The best advice professionals can give their younger compatriots is to buy when the market is tanking. While many investors might be tempted to sell while the house is on fire, it’s the surest way to lock in basement prices on new investments before the market ultimately recovers, launching commodity prices to new highs.
Know that your money must stretch as you stop earning.
Once you leave the workforce, it’s important to remember that your money must continue to grow, and you must keep up a budget just as you would have during the preceding decades. This means pricing quotes for Medicare in order to save on monthly expenses, save in the short term for holiday trips, and continuing to invest so that your capital maintains its upward trajectory. You can’t rest in retirement because your savings portfolio does not magically transform into a static checking account that will last you the rest of your life.
Follow in the footsteps of smart real estate investors like Alastair Barnes and place some of that capital into investment vehicles that will net a monthly rent check that you can budget like a salary. Remember that you don’t have a known end date, so you must budget as if you plan to live forever because your cash needs to maintain for all the unknowns that come with life over an undefined period of time.
Retirement is when you can relax and reap the rewards of a lifetime of work. Make sure you take care of yourself in your younger years and don’t let up once you leave the office for the last time in order to enjoy those fruits of your labor to their full effect.