Retirement planning plays a crucial part in a person’s long-term quality of life. Such planning enables a person to continue to have significant freedom to choose the kind of life he or she desires as age begins to take its toll. To ensure that an individual has enough capital to enjoy a pleasant retirement, that person must make important choices at the beginning of his or her working career. Why is it so crucial that retirement planning begin at the onset of a person’s career?
Retirement planning, like any planning process, deals with the unknown. No person can know the future with any degree of certainty. The planning process for retirement involves making choices that will produce a long-term stream of revenue that can offset loss of regular income as an individual moves into his or her later years of life.
The longer a period over which these financial investments are allowed to grow, the larger the nest egg that will be available when a worker makes the decision to retire. Though the return on an investment over any particular short-term time frame can be unpredictable and sometimes negative, such volatility is lessened as the time involved is extended. The more money that can be invested at the earliest possible time, the greater the possibility of having a significant amount of savings through the retirement years.
A person’s early working years are often a time when expenses are most flexible. This is especially the case if that working person is single as this is a time when he or she has the ability to forgo certain expenditures and instead invest that money into a retirement vehicle. Just as the long-term investment climate cannot be known with certainty, a person’s long-term income history is also uncertain.
As soon as an individual begins to earn more than he or she needs to live on, a portion of that extra income should be invested in financial instruments focused on the retirement years. Over the course of a person’s life, there will be certain times when resources are needed for such things as weddings, housing purchases, and college tuition. During these times, it may be difficult to find extra income available for investing for retirement. Any investments made in the earlier years of a person’s working career will continue to earn income toward retirement, even during those years when contributions cannot be made.
Retirement planning from the earliest available time introduces discipline into an individual’s spending approach. The tendency among young people is to spend everything that they earn with no though of what may happen in the future. This short-term thinking assumes that no unexpected emergencies will come along in a person’s life and such an assumption does not square with reality for most people.
Thinking about the future and investing with a thought toward it creates a limit on how much a person can spend out of each paycheck and supplies a reason for being frugal with one’s spending. Proper spending habits are learned with experience and the experience of taking a portion of a paycheck and putting it aside for retirement helps to reinforce correct behavior. While retirement may seem to be very far off for a young worker, the reality of seeing money set aside grow for the retirement years is an encouragement for that person to continue to work hard and be disciplined with his or her money.
Retirement investments need to produce high yields in order to maintain an individual throughout his or her retirement years. In general the higher return that an investment provides, the more risk that the investor takes on. The higher yield is a reward for the increased risk that is taken. The earlier that an investor can begin to invest for retirement, the more likely that any loss of return in the short term will be made up for in other good years.
Financial markets are determined by the psychological state of those people who invest in them and thus they move in generally unpredictable and sudden ways over any particular short-term time frame. Investment in a high-yielding long-term investment requires the patience to wait out the expected losses while waiting for the offsetting gains to occur. The longer time frame involved, the more patient the investor can be, and the more likely that he or she will be rewarded over time.
A person’s retirement is not something that can be merely left to chance. Many people come to their later years knowing that they have failed to take the time and energy to prepare for their retirement years. Planning is absolutely necessary in order to achieve the kind of assets necessary to keep a person throughout the increasingly long time that people are living.
The earlier that a person can put in place an approach to investing for retirement, the more likely that he or she will be able to gather a nest egg large enough to give him or her options throughout the retirement years. While the tendency of the young worker is to believe that he or she will be able to work forever, the truth is that a person’s working career is limited and that retirement will happen eventually.
Long-term planning and long-term investing requires starting as soon as possible so that money can compound over time in order to offset the expected short-term losses that will occur. Choosing to financially plan for the long term at an early age is one of the best ways to ensure that a person’s retirement years will be comfortable and worthwhile.