A chartered financial consultant and chartered life underwriter, Christopher Fess has more than two decades of experience as a financial advisor. Passionate about financial planning, Christopher Fess believes retirement planning can help people live comfortably in their golden years.
One of the most common concerns people have about retirement is whether it is too late to start investing. The truth is, the earlier a person starts saving, the more they will have, since compound interest grows savings exponentially over time. A person in his or her 40s may not have that much time to benefit from compound interest. However, it’s not too late to start.
Consider this example: If a person 45 years old earning $50,000 annually expects to retire by 65, they have 20 years to invest. If the person invests $100 every month ($1,200 a year or 2.5 percent of income) in an employer-matched 401(k), earning an annual return of 7 percent, he or she will have $100,000 saved by age 65. If the person gradually contributes more than $100 per month, for example up to $2,250 annually at age 50, $3,250 at 55, and $4,250 at 60, matched by the employer up to 3 percent, total retirement savings will be $162,500 by age 65. However, that may not be enough for a comfortable retirement, since the average person spends about $45,756 a year in retirement. Therefore, a more ideal contribution by him or her is 20 to 30 percent of income every year. When time is constrained, the more money contributed toward retirement, the better a person’s chances of retiring comfortably.
Christopher Fess 