Brian Sauter, CFP® answers your Question of the Week by explaining the importance of starting the financial planning process sooner rather than later. The best time to start planning is now. Find out how much you should be saving according to your age.
Hi, I’m Brian Sauter, CERTIFIED FINANCIAL PLANNER™ with Pure Financial Advisors, and this is your Question of the Week.
The question for today is: when should I start doing my financial planning? Now, in all the different areas that go into financial planning itself, the resounding answer is really–now, or as soon as possible. So when it comes to accumulating assets, you really want to figure out how much do I need to save, where’s the best place to be saving it and how long do I need to work. Well, the younger you start that process, the less you actually have to save.
A good example is if a twenty year old starts saving $5,000 per year, gets around an 8% rate of return, they’ll have around 2 million dollars at age 65 for retirement.
Now, if a 40 year old were to try to get to that 2 million dollar level, they would have to save right around $25,000 per year so the younger you start, the power of compounding is on your side and you actually have to save less overall.
When it comes to tax planning, a lot of times I’ve seen people who really overlooked the tax component of their savings. So, if you save, from a tax-efficient standpoint and you’re well-diversified from a tax perspective, that allows you to really control and mitigate your taxes throughout your retirement.
When it comes to things like risk management, throughout your life different areas will become more important, maybe when you’re younger you want to make sure you’re protecting your family with things like term insurance; as you get a little bit older, maybe things like long term care insurance become more important. But overall, you want to make sure that that is being addressed along the way. But, if you look at all the different areas, the resounding answer to all of them is the sooner you start, the better off you’re going to be.
I’m Brian Sauter, and this has been your Question of the Week.