The Importance of Getting Started

Whatever your age, the best time to start investing for retirement is now. Here are some steps to help you and your financial advisor build a strategy to match your unique retirement needs.

Step 1: Evaluate your current situation

• Identify retirement goals and concerns
• List current and future expenses
• Review current retirement investments
• Identify future retirement income sources
• Measure the impact of taxes
• Find a financial advisor to help

Step 2: Build (and occasionally adjust) your strategy

• Determine an asset allocation strategy that matches your risk tolerance and timeline
• Consider tax-advantaged investments
• Pick investments that fit your asset allocation
• Consider the impact of Social Security

Step 3: Be diligent and review your strategy regularly

• Monitor your budget
• Simplify strategy by consolidating assets
• Establish expectations for ongoing reviews with your financial advisor
• Update your estate plan

Waiting can really cost you

Let’s say Diane wants to have a $500,000 nest egg when she retires at age 65. The chart below shows a hypothetical example of how procrastinating about saving can make Diane’s goal harder to achieve. Notice that the amount she would need to save each month to reach that goal grows substantially as she puts off getting started.

Generally, accounts that allow investors to reduce the impact of taxes [e.g., IRAs, 401(k) plans, etc.] are a good idea for retirement savings. However, you’ll notice that if Diane waits until age 55 to start investing, the amount required to reach the target would quickly reach the annual contribution limits for tax-advantaged accounts. She’d have to put some of her savings in a taxable account, which could make it even harder to reach her goal in the specified time frame. The hypothetical illustration below doesn’t reflect the impact of taxes.

Waiting to Invest Makes It Harder to Reach Your Goal Monthly investment needed to build a $500,000 nest egg by age 65

	Starting age			Monthly savings required to reach goal
	Age 35		$444 per month
	Age 45		$1,124 per month
	Age 55		$3,620 per month

This hypothetical example assumes an 8% annual rate of return with all distributions reinvested. The impact of taxes is not reflected here. Calculations do not represent or predict the performance of any mutual fund. For illustrative purposes only, actual results will vary. An investment in a mutual fund does not guarantee that you will have sufficient funds to meet future retirement income needs.

Time is your ally

One of the biggest factors affecting the growth of a retirement nest egg is compounding. And the benefits of compounding tend to be greater over longer periods of time.

The sooner you start investing, the more time your money will have to grow as a result of compounding. It’s possible that given enough time to compound, the part of a nest egg made up of earnings could exceed the amount invested.

After you start, stick to a plan

Some strategic choices about how your money is invested will be in order when you get started. And since these choices will depend on other issues, such as your time frame and your comfort with risk, there’s no substitute for expert advice. Call us at (707) 678-4600 about creating an asset allocation plan that suits your investment goal and time frame.

Of course, the best asset allocation plan in the world won’t make a dime’s worth of difference if you never start investing. So, it’s worth repeating the thought we started with and the one you should take away from this essay: Whatever your age, the right time to start investing for retirement is now.

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