Even if you’re years away from retiring, you’re wise to be thinking about retirement planning. A comfortable retirement that is tailored to meet your specific lifestyle takes time and planning. Combining time and compound returns can help you better prepare for a retirement that meets your goals. It’s important to make sure that you always pay yourself first!
Meet Bill and Sally.
Bill and Sally are both 25, both making $45,000 annually. Bill is enjoying the benefits of a new job and the lifestyle it provides him. He is focused on today rather than tomorrow. Sally has also just started her career. She understands the benefits of compounding and paying herself first. Sally has decided to set aside 10% of her annual income and invest in her own future. Bill, on the other hand, feels he has plenty of time and will start setting aside 10% of his income 10-years from now, enjoying his lifestyle today.
They will each earn 7% per annum:
When Sally retires her commitment to herself will reward her with $90,000 per year before taxes for 20-years in retirement income. Her income will be increased by 2% per year to combat inflation in her retirement. She is well aware that the price of a loaf of bread goes up every year, meaning she’ll need a higher income than today in her retirement. She knows that that a 2% annual inflation rate takes her projected $90,000 retirement income down to the equivalent of $40,750 per year in today’s spending power.
Bill on the other hand has to figure out how to live on $42,850 per year gross in future dollars with the equivalent spending power of $19,400 today!
At L&A Financial we can help you save like Sally and start on the road to financial independence. How much money will it take to be financially independent? That’s very much up to you.
We are here to help ensure you don’t outlive your wealth and your retirement years are spent in comfort and security. Contact us today for a free retirement planning consultation!