Planning for Retirement Early in Life?

Almost without exception, people don't start planning for their retirement early enough in their lives. Young people leaving High School or College and going into their first paid employment find it about impossible to see themselves at age sixty or sixty-five - they simply can't do it. So, when the idea of planning for the day of retirement, perhaps forty plus years into the future, is put to them, their reaction is most likely to be disinterest, possibly scorn, and unfortunately often, dismissive disbelief - that this could ever happen to them.

It's usually well into the fourth decade of a person's life that the reality hits them - retirement is not only there but it's now visible on the horizon and it's time to do something about it. Panic rarely sets in. OK, it's there - but thirty years away and next week will be soon enough to go visit the bank or investment specialist. Unfortunately, next week drifts into next month and next month into next year. Suddenly another five years have slipped by and the day is now only twenty years away.

Now, panic may well set in and it's at this point that a lot of really poor decisions are made. The first mistake that people make is in their prediction of what they're going to need once they're not working. Inflation is, of course, totally unpredictable but high inflation is commonly accompanied by high yields in the stock market which are fed through into yields from pension funds so those factors tend to compensate each other. It's the actual income that's going to be needed that people get wrong. It's true that they won't need to worry about gas to get to and from the office or plant and there won't be the need for working clothes. Basic sustenance should be cheaper too - we'll both be at home, eating together, saving on the costs of bought lunches - with not being worn out by work, who'll need expensive Caribbean vacations?

However! Certainly for the first few years after retirement, there'll be time to spare and energy to burn off. Instead of playing golf on Sunday, it'll be three times a week. Instead of sitting in front of the TV out of exhaustion, there'll be things to do, places to visit and people to see. There's a good chance too that by the time retirement arrives, there'll be Grandchildren to spoil!

The pensions specialist at the bank asks you a load of questions, presses a load of buttons and projections appear on his computer screen. He reminds you that there are only twenty years in which to build up your fund. Assuming you contribute ten percent of your net income, the fund will be worth this much when you retire - he uses his pen to point to a figure on the screen. That will get you a lump sum of fifteen bucks and then 40 cents a month for as long as you live.

Having recovered enough to speak, you ask him to clarify the details. He explains that the projection is based on realistic assessments of the way investment funds might mature - they're based on recent past performance but past performance can, at best be no more than a guide. He (conveniently) doesn't mention the fees, commissions, expenses etc. that he and the bank are going to receive for placing this business. He doesn't tell you about the investment company's commissions and expenses and so on and on and on...

Your next question concerns the level of contribution you'll need to make to realize a monthly income on which you can live reasonably comfortably. You're not asking to live like a movie star (or an investment broker) but you don't want to be in the position where you've got to watch every penny. The guy taps some different buttons and some different numbers appear on the screen. You get up from the floor, offer him some polite thanks and tell him you need to look at some figures and have a talk with your wife! The alternative? Don't leave it until you're in your forties and it's nearly too late - start the process today.