Don’t Give Up, Get Even With Your Financial Frustration

The following is a guest post

For many, preparing for retirement is not always their number one financial priority. Plus, with the market ups and downs, retirement investing can be a challenging process. With this volatility, investors may notice large swings in their account from day to day, making it hard to see progress toward their goals. No matter how discouraging retirement planning can be, you should never give up preparing for your financial future. Take a moment to understand the following things about retirement preparation before you let your frustration dictate your future savings:

Retirement investing is like vacation planning.

Retirement investing and vacation planning both require you to spend some time researching, planning and saving. When you plan to go on vacation, the first steps are usually researching destinations, comparing flights and hotels and eventually making purchases. The same goes for retirement planning.

The first thing you would do is decide on a goal for your retirement. Then you would work out your savings rate and research the available investments, comparing and choosing a match for your retirement needs and wants. After you figure out which investment options work best for your financial situation, you begin to allocate your assets. Just as you wouldn’t show up to the airport without researching your flight, planning your activities and making sure you have enough money for your trip, you wouldn’t show up for retirement without researching your investments, planning your strategies and making sure you have enough capital throughout your retirement.

Unfortunately though, the average investor spends more time planning vacations than planning for retirement.

It’s never too soon to start saving for retirement.

Compounding is the biggest reason for the earliest possible start. As compounding is the growth of earnings, the earlier you contribute money to a retirement account, the better your results will be over the long term. For example, a person who begins saving annually at the age of 25 and raises his contribution amount every few years contributes a total of $392,500 during the 40 years between age 25 and age 65. At an average annual growth rate of 7 percent, that $392,500 grew to $1,434,082.58 by age 65.

On the other hand, a person who waits until age 40 and contributes a total of $505,000 during the 15 years between age 40 and age 65 earned $1,200,608.23 at the same 7 percent average annual growth rate by age 65.

And, remember, pretax contributions into your 401(k) means your retirement account is growing tax-deferred. Also, since you are making pre-tax contributions, you are reducing your taxable income. Your company match is an immediate return on your investment.

A company match is basically free money, so take advantage if it’s offered by your employer. Many employers are willing to match some of an employee’s contribution into their 401(k) or other work retirement accounts. For example, if your company matches you dollar-for-dollar on the first 4 percent that you contribute, you will earn an immediate 100 percent return on your investment as long as you contribute 4 percent of your income. The company match will also help increase your compounding interest. Even if you can’t afford to max out your 401(k), you should make sure to contribute enough to receive the match.

Again, SAVING IS CRUCIAL.

People’s retirement needs will vary greatly, but everyone will have the same basic living needs, such as home maintenance or rent, medical care, transportation, etc. It’s essential that investors understand the importance of saving for retirement. Time and patience will make all the difference come life after work. If you start saving as early as possible, you will be able to provide yourself an adequate source of income throughout retirement and still be able to have some fun along the way.

Don’t let frustration with the current state of the markets and economy keep you from contributing to your retirement account – just a little involvement and patience will help secure your financial future. Remember, retirement planning isn’t a sprint, it’s a marathon.

Scott Holsopple is the president and CEO of Smart401k, offering easy-to-use, cost effective 401(k) advice and solutions for the everyday investor. His advice has been featured on various news outlets, including FOX Business, USA Today and The Wall Street Journal.

Smart401k does not guarantee any rate of return on investment advice. Note that the example used to explain compounding is a fictional investment scenario and is used for illustrative purposes only.