Are you a dedicated or accidental saver? There are in the main two types of savers: first the dedicated saver that determines a pre-set amount on a regular basis and locks it away in an investment environment for a rainy day. Second the accidental saver that has no preconceived amount but saves whatever is left, if any, at the end of the month. The question is, in what camp are you?
The truth is, most young people are reluctant to save because they are having so much fun spending their hard-earned money. Furthermore, retirement planning is esoterically exercised by the more informed few and the majority neglect to do so until it’s too late to be effective.
As governments around the world construe legal syntax affordability arguments to defer the retirement age on the basis of average life expectancy improving, which in certain European countries has topped 80+, can you be sure that your government will still have funds to pay you when you retire? When one considers the painstaking reality that most European country demographics have an ageing population dilemma, coupled with a progressive lower birth rate, the end scenario in a little over two decades is that there will be more people retired than those who are net tax contributors.
How to avoid the fallout should the above become reality and the coffers of our governments’ larders are bare? Start today to build a fallout shelter in the form of a private modern flexible saving programme.
Fortune runs to meet us not less often than we go to meet her
Back to basics, and save for a rainy day by initiating as soon as possible a saving programme designed to replace the traditional retirement pension plan. Most traditional retirement plans are relatively inflexible and may not be accessible until a specific age. For a myriad of reasons, not strictly limited to the above, you should consider modern regular saving vehicles to provide benefits both in and prior to retirement.
Contributions can be tailored to an individual’s affordability and interrupted should the circumstances of the saver alter, for life is often unpredictable.
The key considerations for many of us thinking about having an income in retirement are: how much is it going to cost and what is it going to be worth? More importantly, what is the financial impact of procrastinating for another year or more?
Procrastination is the thief of time
For example, if a 25-year-old was to start saving €300 per month now, then by the time they are 55 they could achieve a fund value of €269,000. If they start at age 35, they’ll need to save €624 per month to achieve the same fund value. If they start at 45, the monthly payment would become €1,742!
Chart 1 demonstrates proper planning prevents poor performance. In practical monetary terms the cost of procrastination by saving €300 a month could provide a fund of 269,000€ in 30 years’ time as opposed to €44,600 in 10 years’ time.
Furthermore, by deferring the inception of the saving plan, the cost of contributions required to reach the objective fund value, as above, would increase as seen on chart 2.
It would require €1,742 per month over a 10-year term to match the fund value of €300 per month over a 30-year time frame. As such, the delay in which you commence the saving programme, as illustrated above, will have a dramatic effect not only on the fund value that you will end up with, but also the lifestyle changes you may have to make as a direct result of having to save more in later years to make up the shortfall.
Notes: The figures quoted above and used in the graphics in this article are for illustration purposes only and not indicative of any one product. For further information regarding the above saving-programme or indeed all other financial investments, please visit www.blacktowerfm.com
