The single-most important reason to start investing for your retirement today

“The rich invest in time, the poor invest in money.” Warren Buffet.

‘Start investing early’ that’s the most talked about phrase these days. Everyone seems to be saying ‘Start Investing Early’ and there is a long list of reasons supporting the logic of starting to start Investing early. So, what are the top reasons being quoted around for supporting the said logic –

1. Can start with small amounts

2. Can take greater risks

3. Market volatility would have least impact over long term

4. Compounding & longer periods means big end corpus

5. Lesser responsibilities = greater cash for investing

6. Can help improving your spending/ saving habits

All of the above reasons are very real and practical. But we aren’t going to talk about them today. We are going to talk about only one ‘single and most important reason to start investing early’ for retirement.

And how do we arrive at the single most important reason to start investing at the earliest – by answering the question below (Hint – the question is not ‘How to Rob a bank?’)

How much should one save (and invest) for a comfortable post-retirement life?

Yes, this question has haunted everyone for a very long time and no one seems to be able to find a one size fits all solution to the problem. The solution that we are going to discuss today would answer this question and also highlight the importance of Starting Investments as early as possible.

Let’s try to understand this with an example. There are four individuals – A, B, C & D

A – 25 years old

B – 35 years old

C – 45 years old

D – 55 years old

None of them have started saving for retirement but all want to retire at 60 years.

Numbers from HouseHold survey available at data.gov.sg  

We did an analysis to understand how much each one of them should be saving (for investments) regularly for a comfortable post retirement life – if they all start saving (for investments) now.

What we find by combining the above information, the life situations of A, B, C & D and the results of our assessment.

The above graphic tells us that its best to start your retirement savings as early as possible, because

‘After a certain age, the savings rate needed to maintain same post retirement lifestyle becomes impossible to achieve!’

So, there is the most important reason of all the reasons to start saving early.

But, why does that happen?  There are a several reasons that drive this result –

1. Compounding – due to compounding starting early means having to invest a very small portion of your income and letting the time do the rest of work

2. Responsibilities – Increasing responsibilities make it difficult to start saving every progressive year

3. Expenses – Controlling expenses becomes very difficult with time. Starting savings early on gives you a sense of your expenses and helps keep them under control later when responsibilities increase

4. Market unpredictability and risks have least impact on end corpus due to long investment horizon

Therefore, unless you want to rob a bank to finance your retirement, start saving and investing for your retirement today!

In this article we have discussed implications of starting to save/ invest early on retirement corpus, but ‘Start investing today’, applies to all your financial goals. And all the benefits you get due to starting investments early for your retirement would also be applicable to any other financial goals you need to save/ invest for.

Keep on visiting us regularly as next we are going to come out with a guide on – How to handle the Common Issues you face when you START INVESTING for the first time!

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