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Why Retirement Planning Is Important For the Youths

“The goal of retirement is to live off your assets-not on them” ~ Frank Eberhart.

Retirement planning not only provides the much needed financial security, but it is also a safety net and a nest egg for your future. When you no longer have the strength to work, you need to be in a financial position where your money is working for you.

‘It is too early for me to worry about retirement,’ is a common mindset for most young people. Yes, retirement may be a long way off and may feel even longer for someone just starting their working years, but there are a couple of reasons that retirement planning is particularly important for young people.

Compounding Effect

There is magic in compound interest. Take two individuals, both aged 25. One invests Ksh. 1,000 on a monthly basis every year until age 34, and then never invests again. The other one waits until age 35 and then invests Ksh.3,000 a year for the next 20 years. If both earn the same 15% average annualized rate of return, who will have more money at age 55?

Even though the second individual saved three times as much as the first, it turns out that the first individual ends up with approximately 8% more money. That is why compound interest has been called the “greatest mathematical discovery of all time” and “the most powerful force in the universe.” In short, the earlier you start saving for retirement, the more your savings will grow over time.

The Age Effect

There is also another advantage that young people have when it comes to saving for retirement. The example above assumes that both individuals earn the same return. But since young people have a longer time to invest and to ride out the ups and downs of the market, they can generally afford to invest more aggressively than people who are closer to retirement.

Young people should invest more aggressively in stocks to reap the rewards of higher returns in the early stages of their working lives, then later switch to less risky, more stable investments as retirement draws closer. To make it easy, one could simply save in the Zimele Personal Pension Plan, which is partly invested in shares, during the first 25 years of their working lives to maximize on the growth factor from shares, then later switch to the Zimele Guaranteed Pension Plan to preserve their savings as they near retirement.

Conclusion

The key to successful retirement planning is managing the right amount of savings and putting them in the right place. Open a Zimele Personal Pension Plan account today to start the journey to your retirement early, and enjoy the power of compounding.

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