Study: My Understanding of

How to Save for Life after Retirement

Unless you happen to come from a wealthy family, or you have a defined benefit pension plan, you should worry about the future state of your finances, once you reach retirement age. No one wants to get to retirement only to find they cannot support themselves financially. It happens to be a time when you need enough funds since you will need a more robust support system to live well.

Retirement happens to be at a stage in life which when you think about, you may worry a lot. There is the question of the time you will stop working, how long you expect to live, how well any investments you make will perform by then, whether you will engage in travel, what activities will occupy your time, what level of lifestyle do you expect to maintain, where will you live, and such concerns.

Planning your financial freedom in the retirement stage involves saving now. The earlier you start saving, the easier it will be for you. When you have more time, you tend to need to save a small amount. But if you are short on time, you need to save plenty, to make up for lost time. There is also the matter of compounding.

Compound interest works in such a way that the longer you save, the bigger the return on your investment. Each savings you make earns an interest. An example is if you have $20 to save each month, at an interest rate of 7{887a669b72be6881f67dae7c0d31f25cc9841351d4641ce3fb56d3d9caffed44}, the first month your investment will read $20. At the beginning of the next month, it will be $20 plus the 7{887a669b72be6881f67dae7c0d31f25cc9841351d4641ce3fb56d3d9caffed44} interest. At the beginning of the next month, it will be the first $20 plus the 7{887a669b72be6881f67dae7c0d31f25cc9841351d4641ce3fb56d3d9caffed44} interest, plus another 7{887a669b72be6881f67dae7c0d31f25cc9841351d4641ce3fb56d3d9caffed44} interest on that sum. With each month comes the addition to another $20, and a 7{887a669b72be6881f67dae7c0d31f25cc9841351d4641ce3fb56d3d9caffed44} interest added on the total sum, thus the compounding effect. Had it been simple interest, for comparison, you would have had all the $20 you ever saved added up, then a one-off 7{887a669b72be6881f67dae7c0d31f25cc9841351d4641ce3fb56d3d9caffed44} interest added to that figure, which would be meager.

The compounding effect is proportional to the amount you save, meaning no matter what you save, it will grow quite substantially as time goes. Therefore, those who may claim not to have enough to save should begin by saving what little they have. By the time they get to retirement age, they might be surprised how much their investment made.

It is clear that the best tool to use for your retirement savings is compound interest. There are many financial vehicles you can access from different companies that present different riders and added features to this principle, but the concept remains the same. What may differ is the introduction of other forms of retirement plans, which may take a different approach. It is best you consult a professional retirement planning advisor, to get a clearer picture of your options in your current situation, and future prospects, with all the changes that may come. Be wise to stick with an expert who takes you through the journey, and stays with it for the long term.

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