Why today is the best day to start saving for retirement

By Louise Chan

March 04 2020
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Everyone wants to enjoy a comfortable lifestyle and be financially secure in their senior years, but some people are better at saving for retirement than others.

Many focus on increasing their income and put off saving money for their retirement with the promise to try and catch up when they receive a bigger income. But as they get closer to their 60s, some give up on saving and investing because they’re too close to retirement to succeed – they end up relying on age pension as their source of retirement income.

However, giving up on growing your retirement savings shouldn’t be an option because income from social security may not be enough to enjoy a comfortable lifestyle in retirement. Likewise, not everyone is fortunate enough to be employed in a company wherein the employer offers a retirement plan.

As financial planners and retirement experts say, it’s never too late to start saving for retirement. Even with just five years or a decade left to your retirement age, there’s still hope of securing enough money to increase your retirement income.

Time is an important factor when it comes to saving and investing – the time value of money is on your side if you start today instead of tomorrow or any other day in the future.

What is the time value of money?

The time value of money concept suggests that the money you hold in the present is more valuable than if you receive the same amount at a later time.

This idea is that if you invest the money you hold today, it has the advantage of increasing in value from investment returns.

It doesn’t matter if you keep the money in an individual retirement account or savings account or invest in index funds or managed funds – if you invest smart, the money will grow over time.

As most investment experts say “an investor’s time in the market is more important than timing the market”.

This is because keeping your money invested will allow you to take advantage of the power of compound interest.

Compound interest basically means that the interest you earn is reinvested and forms part of the new principal amount. This new principal is then used to compute for the next interest payment and this will result in a higher investment return.

What do you need to do today to prepare for retirement?

Regardless of your current age and income, it’s important to start building your retirement finances today.

Begin by writing down your plans for retirement and estimating how much income you would need to achieve it. For a better estimate, consider using a retirement calculator – there are many available online.

Next, take a good look at your current financial circumstance to determine how to turn your retirement dreams into reality.

Consider creating a budget and spending plan to minimise unnecessary expenses and increase savings. Likewise, clear all your debts so it doesn’t negate your efforts to save money.

Start small
It’s completely acceptable to start small. For instance, you may salary sacrifice an extra $100 or $200 in your super on top of the 9.5 per cent super guarantee. Then, as your salary grows, increase the amount you salary sacrifice until you can max out the concessional contributions cap.

If you still have some extra savings, you may also make voluntary non-concessional contributions.

However, it’s highly advised that you focus on voluntary contributions in super and other investments if you no longer have any debts to pay off. If you do, consider becoming debt-free first.

Seek professional advice

If you think you lack the personal finance skills required to plan everything, consider seeking the advice of a licensed professionals who can help you create a feasible retirement plan.

Likewise, a tax professional may help you reduce your income taxes each financial year by informing you of applicable tax deductions and offsets that you are eligible to claim.

Explore nestegg to learn more about retirement planning.

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

About the author

Louise Chan

Louise is a content producer for Momentum Media’s nestegg who likes keeping up-to-date with all the ways people can work towards financial stability in 2019. She also enjoys turning complex information into easy-to-digest, practical tips to help those who want to achieve financial independence.

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Retirement