Where did the time go? I am the same age as my parents when they had their first grandchild.
Yes, time flies whether we like it or not.
Successful retirement plans are built over the years. Saving the right amount of your income each year and using the best financial vehicle to achieve that goal takes persistence and planning. Lawmakers are trying to make serious changes that could impact future opportunities. We need to focus. Consider the time factor first.
The winning mix is not an overnight success. But the impact cannot be ignored. Systematically depositing funds over time and letting those dollars and profits pile up is what Einstein called “the eighth wonder of the world.”
Here is an example of the impact of time. John, 20, begins making monthly deposits of $ 200 into his investment account. His return is 5% each year and he continues this practice until the age of 65. He now has $ 407,176 while contributing only $ 108,200. Compare John with his brother Jared. Jared starts saving at age 35, saving $ 200 a month and earning 5% a year. Jared’s account at 65 will be $ 228,365. He has contributed less in the meantime, but the impact has been terrible. He contributed a total capital of $ 84,200.
Time is your friend when you start early and your enemy when you start late.
It’s important to start saving, but so is where to invest assets. If available, using a systematic process is beneficial. One of the best ways to accomplish this systematic retirement savings plan is to use a work sponsored retirement plan, a DCP (Defined Contribution Plan) commonly referred to as 401 (k) for private employers and 403 ( b) s & 457s for those in the public sectors.
It’s common for employee-sponsored plans to have a matching element, and you should consider this impact when deciding to save or spend your money today.
Individual retirement accounts (IRAs) are also available for people with current income requirements. If you can fund an IRA in addition to your defined contribution plan, you should. If you don’t have access to an employer-sponsored retirement plan, IRAs may be your best and only option.
Health Savings Accounts (HSAs) are incredible savings vehicles. Your contribution lowers your taxable income, grows tax-free, and remains tax-free when used for medical expenses, including Medicare Part B premiums. You can use the non-taxable dollars to pay for coinsurance, quotas and your deductibles. You can carry any unused portion for future expenses, and income restrictions do not apply. You must have a medical plan that meets the standard for HSAs.
Think of them as the top three vehicles for retirement savings, but also understand that good intentions never paid for a trip to Venice. Consistency in adding to accounts over time will allow the magic of compound interest to work.
Daily problems will always arise to thwart your efforts; it takes time and discipline to save money. Invest in yourself to create the retirement you dream of.
Joseph “Big Joe” Clark, whose column is published on Saturdays, is a certified financial planner. He can be contacted at firstname.lastname@example.org or