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Even if you feel you’re too far away from retirement to start thinking about it, it’s important that you start planning now.

Many people assume they can hold off saving for retirement and make up the difference later. But this can be a very costly mistake. The further off your retirement is, the more time your investments have the potential to grow. Waiting too long can make it very difficult to catch up, and only a few years can make a big difference in how much you’ll accumulate.

For example, invest $3,000 every year starting when you’re 20 years old and, if you retire after age 65, you will have accumulated almost $680,000 (assuming a 6% annual growth rate and no tax).

If you wait until age 35 and start saving $3,000 annually, you’ll accumulate only about $254,000. And, if you wait until age 45 to start saving, you’ll accumulate only about $120,000 by the time you retire.

This doesn’t mean there’s no hope if you’re 50 years old and you haven’t set aside anything for retirement yet. It just makes it all the more important that you implement a plan today.

Of course, this is only an illustration used to make a point.

Before you can start planning for your retirement, you need to ask yourself three basic questions:

  • What kind of retirement do I want to plan for?
  • When do I want to retire?
  • How long will retirement last?

Close your eyes for a second and picture your own retirement. Whether you see yourself on a golf course, a yacht, a hammock, or simply in your own living room, most of you probably imagine some degree of financial independence. To a large extent, maintaining financial independence in retirement depends upon the lifestyle we want.

And have you thought about when you’d like to retire? It’s important, because the earlier you retire the shorter the period of time you have to accumulate funds, and the longer the period of time those dollars will need to last. Although you can retire anytime, most people wait until they’re eligible for Social Security retirement benefits. You can’t start receiving Social Security benefits until age 62, and the earliest you can receive full Social Security retirement benefits is age 65 to 67, depending on the year you were born. Also, you’re not eligible for Medicare health coverage until age 65, so if you want to retire before then, you’ll want to plan for private health insurance.

As we just discussed, the earlier you retire, the longer the period of time your funds will need to last. But how long should you plan on your retirement lasting? Keep in mind that life expectancy has increased at a steady pace over the years, and is expected to continue increasing. The point I want to make is that, for many of us, it’s not unreasonable to plan for a retirement period that lasts for 25 years or more.

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