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Why Should You Start Retirement Planning Now?

When it comes to retirement planning you can never get started too early. The mistake many individuals make is that they graduate high school or college and put retirement planning on the back burner for years at a time. The world is their oyster and their whole future is ahead of them but it takes serious planning and forethought to anticipate your needs in 40 years. In order to enjoy your golden years there are a number of reasons why you should start retirement planning now.

One primary reason to start retirement planning sooner rather than later is that the earlier you start the less money is required to still create a sizable nest egg. What this means is that an individual who is 23 years old and freshly graduated from college can invest less per paycheck from their first job and still possibly have a million dollars upon retirement. If instead they start a family and buy a few cars then wait until they're 40 to start thinking about retirement they'll have to invest significantly more money in a shorter period of time. This is due primarily to the magic of compounding returns. Almost every financial advisor will show clients a compounding chart which turns a few thousand dollars a year with an average rate of return of 5% into $1 million at retirement. The key however is that compounding only works its magic over the long run and cannot be done in five or 10 years.

Another reason the start retirement planning now is to make it a habit. Many companies no longer offer pensions but do have employer based retirement accounts such as 401(k)s. This allows employees to take a certain percentage of their pretax income and apply it to a retirement account. Many organizations, to incentivize employees to participate in employer retirement accounts, often offer matching funds up to a certain dollar amount. If you work for an organization which both offers a 401(k) and matching then it is highly recommended to participate and contribute the maximum allowable. Many employees are amazed at the balance of their 401(k) within as little as 5 to 10 years. Not only is company matching basically free money but because the contributions are taken out on a pretax basis many employees don't even miss the money being withdrawn. This creates an automatic habit of saving money for retirement with no effort from the individual other than filling out a piece of paper to sign up for the program.

In all likelihood the Social Security program in the United States will cease to exist as we currently know it. This is due to multiple factors including mismanagement by not using means testing or raising the retirement age as life expectancy grows but also because the population in general is getting older. What this means for today's workers is that if they were hoping to live off of a Social Security check in 40 years they are probably going to be sorely disappointed. The days of corporate pensions and government entitlement programs are rapidly drawing to a close. Workers today in their 20s and 30s will have to look out for themselves if they want to enjoy their golden years. Taking responsibility for your own financial future is the best way to ensure you have a comfortable retirement.

Every single worker should start their retirement planning now because if they wait until tomorrow it might be too late. $25 a paycheck into an IRA mutual fund or a 401(k) with employer matching may be all that's required to build a sizable nest egg when you retire. The longer you wait the more you'll need to contribute and even then there's no guarantee that you won't outlive your retirement savings. Successful retirement planning is about contributing early and often to retirement accounts. Workers who do this will be happily prepared for travel and buying their grand kids presents. Workers who don't will probably be scraping to get by and deciding whether or not to pay the heating bill or buy their prescription medication. As with any endeavor when someone asks when should you get started the answer should always be there is no time like the present.