When should you start planning for retirement?
I was recently looking through a study conducted by Leger Marketing (2011) on behalf of the BMO Retirement Institute.
One of the ‘not so startling’ conclusions was that young adults (YAs) under the age of 35 are the least prepared for retirement.
In fact, this study revealed that 27 per cent of them have not saved at all for retirement.
Not a single penny!
Ironically, the study also found that as many as 41 per cent of them expect to retire early.
Is this really a surprise to anybody?
My initial gut reaction was that YAs are the least prepared for retirement because, in all probability, their retirement date is the furthest away.
My second recollection was the financial planning certainty that the earlier people start to save for retirement, the greater the potential that they will achieve future financial security.
So why is this incongruity between their retirement expectations and their retirement plan happening?
In my opinion, there are a few reasons that YAs aren’t preparing for their retirement yet.
First of all, living now may be ranked higher than retiring later.
The combined effect of consumerism, higher student debt, under employment and lower real wages may help to explain why so many YAs have decided to postpone moving out of their parent’s home, getting married, having children and contributing to a RRSP.
Second, I think that fragile global economies and real estate crashes may have also caused them to be skeptical and hesitant about investing their newly earned money.
The problem for them is that these trends could easily translate into years of lost lifetime income and compounding returns, which could place YAs at significant risk of not saving enough for retirement.
Third, I also believe that YAs are finding it difficult to picture retirement.
I realize that it is difficult for anyone to accurately predict how much they will spend during their retirement; however, this is a critical starting point before any appropriate savings plan can be established.
Finally, the study found that when the YAs seek information on retirement planning, they tend to speak about it with family and friends and generally only in passing.
Although their friends and family may have wisdom and knowledge about many things, they are unlikely to have the tools, the experience and the knowledge on these topics that credible financial planning professionals have.
I can tell you from experience that I rarely talk to anyone who has calculated how much they need to save or what rate of return they need to earn to retire the way they want to.
We will certainly get old. We will certainly need money when we retire and we will certainly think about our retirement planning decisions.
If that’s the case, then it doesn’t matter how old you are.
The best age for planning for retirement is right now so you can make your best selections from your available choices.