It’s never too early for retirement planning, but it can be too late. Now is as good a time as any (actually, it’s the best time) to start planning for your retirement. That’s for several reasons, one of them being the “miracle” of compounding, with others being explained below.
While it’s easy to dream of retiring early, it’s not so simple to make it happen. Short of winning the lottery (and not spending all of it too soon), people in their thirties and forties should have ample time to plan for retirement. Twenty or thirty years before retirement might seem to be much too soon, but that’s exactly how to get ahead of the game. One reason you’ll realize the best return from starting early: compounding.
The Paper-Folding Trick
Imagine folding a piece of paper in half, and then folding that in half. Now continue to fold it in half another 42 times. The reason you should imagine this instead of trying it at home? Because if you could actually fold a thin piece of paper 42 times, it would reach from the earth to the moon.1 No rockets required. Compounding money through interest won’t double itself, but it follows the same principle of growth. The earlier you plan, invest, and manage your money wisely, the time it has to compound and grow.
The Dividend Factor
Companies pay dividends to shareholders for many reasons. Here are just a few of them. Dividends provide a way for firms to allocate some of their profits instead of making capital expenditures or acquisitions. Paying out dividends demonstrates the company’s strength while giving additional incentives to shareholders to either buy or hold their stock.2
In the long run, dividends can provide a hedge against underwhelming investment performance and the eroding effects of inflation. The dividends paid by firms can provide a consistent flow of income during retirement, too. And dividends can really add up over the years, with some companies paying them year after year. Johnson & Johnson may win the Cal Ripken award for longest streak of increasing its annual dividend. It has done so every year since 1963.3
Yet another reason to start your retirement planning sooner than later: long-term investment in stocks. In our experience, the best way to avoid sleeplessness during periods of high volatility in the markets is to invest in strong, proven companies for the long term. There will always be peaks and valleys, but having a distant horizon for investing means no need to panic sell when the markets are off. And, as mentioned before, a lot of the firms that warrant long-term investment tend to issue dividends as well.
Better Late than Never
Well, what if you’re reading this and you’re not that far from retirement? There are still a few things you can do, but the first thing is to find a financial advisor and get some help with a plan. If you really haven’t done any financial planning yet, this should be at the top of your list. An advisor will be your best bet for cutting to the chase for investment and money management options.
In addition to having plenty of friends and family around with which to share your retirement adventures, you’ll want plenty of one more thing: cashflow. Nothing could put more of a damper on your years in retirement than lacking the funds to make them comfortable. That’s why it’s so important to plan far ahead to replace the income from your jobs that you’ll have stopped for retirement.
So, no matter how many or few candles will be on your next birthday cake, give yourself a present and start planning ahead for retirement. You’ll thank yourself many years from now!
Disclosure: This information is for educational and informative purposes and shall not be considered a specific recommendation. Readers are advised to speak with their advisor at JL Bainbridge to determine their specific recommendations that meet their investment objectives and to review their portfolios. The material being provided is thought to be accurate. However, the information is compiled from multiple resources and may become outdated or otherwise rendered incorrect by new research or corrections without notice. J.L. Bainbridge & Co., Inc., is not a broker dealer and does not offer tax or legal advice. Please consult your tax or legal advisor for assistance regarding your individual situation. It should neither be assumed that future results will be as profitable or that a loss could not be incurred. For more information related to our firm, please see our disclosure brochures at jlbainbridge.com and https://adviserinfo.sec.gov/firm/summary/108058.
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