There Are Advantages in Saving Sooner


By Douglas L. Hall

Most people have good intentions about saving for retirement, but according to recent studies, only a small percentage of them put those good intentions into practice.

For many people, saving for retirement takes a back seat to keeping up with the day-to-day cost of living. Retirement, especially if it’s “out there” 20 years from now, becomes something we promise ourselves we’ll deal with down the road when we have more time and money. But is that really a good idea?

Let’s look at two physicians, Smith and Jones. They are equal partners in a medical practice. Both are 45 years old and both plan to retire at age 65. Their financial adviser has suggested they increase the amount of money they are saving each month if they want to be able to maintain their lifestyle during retirement.

Both agree with this recommendation and agree to begin saving more, but each takes a different approach. Smith begins saving $275 a month immediately, and she does so for a 10-year period. Jones, on the other hand, waits 10 years before starting to save, at which time he, too, saves $275 a month for 10 years. For the purposes of this discussion we’ll assume that both doctors earn a flat 8 percent rate of interest on their savings.

It is now 20 years later. Both doctors are 65 and both have put away a total of $33,000. Jones, the procrastinator, has earned $14,804 in interest for a total of $47,805 in savings. Smith, the early starter, has earned more than $70,000 in interest for a total of 103,208 — more than twice what Jones has accumulated with the same initial investment.

Note: This example does not consider inflation or taxes and does not represent any particular savings vehicle.

So what does this tell us? Not only is it wise to set money aside for the future, but those who start saving sooner can take advantage of the power of compounding, giving their money more time to accumulate interest. (They may also be able to retire sooner.)

If you have trouble saving money on a regular basis, there are a number of strategies you can try that may help make it easier. One strategy is whole life insurance, which, in addition to providing valuable survivorship protection for your family or practice, builds cash values that grow income tax-deferred. If you die prematurely, the life insurance completes your savings program. If you live to retirement, you can access your cash values to supplement retirement income.

Do note that accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, may reduce benefits and will result in a reduction of policy values.

Other strategies include taking advantage of employer-sponsored retirement plans such as 401(k) or Simplified Employee Pension Plans (SEPs), as well as using payroll deductions or automatic bank drafts to funnel money into the savings vehicle of your choice. Setting money aside in this manner is both steady and convenient, and it essentially allows you to pay yourself before you pay your creditors.

If you’ve been putting off saving for retirement until sometime down the road, do yourself and your loved ones a favor: Take the time today. When the time comes for retirement, you’ll be glad you did. 

Check Your Fiscal Fitness by Asking 10 Questions

How Fiscally Fit are you?

You may vow to get into shape, lose weight and eat healthier or some other measure to improve your overall physical health. While these things will help you to feel better and hopefully live longer, they still require a strong will and self-discipline to meet the goal.

Just as physical fitness can renew your vitality and increase your energy, fiscal fitness can help to invigorate your financial future. Don’t be fooled because this, too, takes discipline.

The following test will help you measure your fiscal fitness. If you are one of the fortunate people who have everything well under control — carry on. If you don’t fall into this category — then it might be time to for a check-up.

  1. Do you find yourself financially short before each payday?
  2. Do you have trouble knowing where your money went?
  3. Has a recent change in your job or family status caused increased financial pressure?
  4. Are you sure that the life, health and dental insurance you receive from your employer will be sufficient for your family?
  5. Are you saving for your children’s future education?
  6. Will you run out of money during your retirement years?
  7. Should your current savings be working harder for you?
  8. Are your assets positioned properly to pass on to your beneficiary(s)?
  9. Do you plan adequately for taxes, or is April 15 disaster time?
  10. Lastly, have you established an emergency fund? If so, will it be sufficient for at least three months?

How did you do? If you’re uncomfortable with your answers, then it might be time to revisit your plans. If you need assistance, don’t put it off — get it now.

There are a number of planning tools available that can help you feel more in control of your financial well-being. It might also be beneficial for you to discuss your needs with financial professionals who can help by recommending an appropriate strategy designed specifically for you.

It all boils down to this: Regardless of your method, getting started is the key to helping you secure not only your fiscal fitness, but also your financial future. 

Douglas L. Hall is a senior partner in the 1847 Private Client Group in Conshohocken.


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