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It Is Never Too Early To Start Retirement Planning


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Why Retirement Planning Is Important

Retirement PlanningMany young people just starting out their careers do not put much thought into retirement planning; however, it is never too early to start retirement planning, because the earlier one starts saving for retirement, the more money they will likely have when the day of retirement inevitably comes.  In fact, if one starts retirement planning and investing money for retirement early in their career, they can expect to earn rates of long-term retirement investment returns that are much better than those that try to play catch up with their retirement investing late in their careers.

The days of solid company-provided pensions for retirement are long gone.  Many companies these days contribute to employee’s retirement savings by contributing to the periodic funding of 401-K retirement accounts; however, employees can no longer rely on their employer to provide for them during retirement.  The other pillar of retirement funds, the government run Social Security program, is unreliable due to the fiscal challenges the government faces.  Social Security has always provided a minimal amount of payments to those that are in retirement, and cannot be relied upon to provide enough money for a comfortable retirement.  The lack of company provided retirement pensions and the lack of money provided by Social Security make retirement planning more important than ever for young people entering the work force.

Long-Term Retirement Planning

It is important to start retirement planning and investing money for retirement early, because investments in the stock market, which offer the best long term returns of any investment class, require a long period of time to achieve their expected annual gains of 7% to 15%.  The stock market is notoriously volatile, and in any given year retirement investments can lose or gain in value.  The gains in the stock market are made by being invested in the stock market over many decades to capture the long-term upside movement that the stock market traditionally makes and to capture dividend payments from stocks held in a retirement account.

A good strategy for young workers to pursue when considering retirement planning is to aggressively invest in the stock market through mutual funds or other diversified investment products when they are between age 20 and 50.  Since many workers invest in the stock market via mutual funds in their 401-K retirement accounts or Individual Retirement Accounts (IRAs), an important part of retirement planning is to research which mutual funds have historically beat their benchmark stock market tracking averages and invest in outperforming mutual funds.  Approximately half of the long-term stock market gains are made through dividend payments rather than actual gains in stock prices, and therefore proper retirement planning should include stocks or mutual funds that pay healthy dividends.  Once a worker reaches the age of 50, they should start to shift money out of the volatile stock market and into more stable investments, such as bonds or fixed-income investments.  By age 65, proper retirement planning dictates that workers move the bulk of their money into safe fixed-income investments, so their retirement savings is available to them during retirement.

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