It can be so easy to think of retirement as a far off event and as...

It can be so easy to think of retirement as a far off event and as a result it can be hard to get started. What are some reasons to start preparing now for retirement?

Expert Solution

The main reason to start retirement today is to reap the benefit compounding . The compounding is often considered as the eighth wonder of the world. There can be a wide difference between staring for saving for retirement at age 25 rather than at age 35.

Let us assume you save $500 per month for 40 years between age 25 and when you retire iat age 65.

So you have 40*12 =480 months at which you save $500 per month.

So assuming an annual interest rate of 10% this annuity of $500 will be =FV(rate,nper,pmt) =FV(0.10/12,480,500) = $3.16 Million at retirement

Now, let us say you delay saving for retirement by 10 years meaning to say you have a total of 30 years for retirement.

So you have 30*1 = 360 months at which you save $500 per month.

So assuming an annual interest rate of 10% this annuity of $500 will be =FV(rate,nper,pmt) =FV(0.10/12,360,500) = $3.16 Million at retirement = $1.13 Million at retirement

As you see you lose more than half of your retirement corpus by delaying savings for 10 years. Hence it is prudent that you start savings for retirement now rather than later

jeff jeffy answered 1 year ago

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