Retirement Planning: 3 Reasons To Start

Retirement for a lot of folks seems so far away.  Oftentimes this results in a lack of urgency to begin saving for the future.  There will be expenses when you retire.  There are many forces to take into consideration when you think about when to start planning for retirement.  Knowing more about these challenges can give you motivation to begin saving for your future.  Money is active and always changing.  Below are three reasons for you to learn more and start planning for your retirement.

 

 1) Inflation

Put simply, inflation is defined as continuously rising prices, or the continual fall in the the price of a dollar.  It is measured in percentages.  We all know the price of groceries and gas went up this past year.  The last decade inflation has averaged around 3%.  However, inflation in 2009 has not been as high as I thought it would.

I went to www.usinflationcalculator.com and found that what cost $20.00 in 1988 cost $35.54 in 2008.  This is a 77% increase in price over a 20 year span.  If you are 5 or 25 years from retiring, you must take inflation’s affect into account when thinking about your future.

I’m not a mathematician but if the rate for the past 20 years remains the same for the next 20, here is what a round of golf will cost.  Today’s cost: $30.00.  2028 = $53.10.

Sometimes seeing the numbers can help us see the need for investing now.  The earlier you begin saving can help you enjoy the benefits of the next reason.

 

2) Compound Interest

This has been called the 8^th wonder of the world.  The money that you invest compounds each year. Example: $1200 invested in year 1, compounded twice a year at 10% interest is 1323 (1200 + 123)

                1323 at end of year 2, same 10% rate 1323 + 135 = 1458

                1458                   “  3,     “        “         1452 + 145 = 1608

This example assumes you make no new contributions to the original amount. I'm not good at math so I included a link for you to run your own numbers.  

Here is the address:  http://www.webmath.compinterest.html.  When asked to enter how often the money compounds, I think 2 or 4 are what you find in most investments. I'm limited in the math of compound interest. However, this is valuable knowledge to grasp in regards to how money can grow.

 

3) Healthcare Costs

Medical News Reports Today reports that healthcare spending grew at a rate of  6.1% in 2007 down a little bit from 2006 rate of  6.7%.  If you breathe air you know the high cost of healthcare.  There is no sign that this rate will decline in the years ahead.  The average inflation rate in America is only half of the growth rate of healthcare costs. We will have healthcare costs in retirement.  They will be a real issue as we become older.

Here are three reasons you need retirement money for healthcare:

1) Your need for healthcare treatment increases as we age; 2) The cost of those services are going to be higher; 3) Medicare coverage will not cover all medical expenses in retirement.  The Kaiser Family Foundation reports the following expenses as uncovered by Medicare: dental care, eye exams, eyeglasses, short-term skilled nursing care, and healthcare given outside the United States.  In summary, you need to have retirement dollars set aside for healthcare expenses.