Best Retirement Advice I Received When I Was 10 Years Old

When I was ten, my grandfather – who was, at that time, a well-settled retiree,  shared some of the best retirement advice with me.  Although I didn’t understand much at that time, I knew they were meant to benefit me sooner or later.  They have stayed with me throughout my life, and as I grew older and learned more about finance and the importance of planning for the future, I realized how valuable his wisdom was. 

Through this article, I will walk you through the pieces of advice that have proven to be most impactful in securing my financial future. Read on and discover why they are crucial to consider as you prepare for retirement.

Start Saving Early

One of the best pieces of retirement advice that my grandfather shared was the importance of starting to save for retirement as early as possible. With the power of compounding interest, even small amounts of money saved early on can grow significantly over time. For example, if you start saving $200 per month for retirement from 25, you would have approximately $1,000,000 by the time you reach 67, assuming a 7% annual return on your investment.

Saving early allows you to take advantage of time, which is the most valuable asset when it comes to investing. The longer money is invested, the more potential there is for growth. This concept is known as the time value of money.

Diversification is another crucial aspect of retirement planning. My grandfather emphasized the importance of spreading investments across various assets to mitigate risk. By diversifying, you can protect your retirement savings from the potential negative impact of a single poorly performing investment.

In addition to spreading investments across different asset classes, such as stocks, bonds, and real estate, it is also essential to diversify within each asset class. For example, investing in various stocks from different industries or regions can help reduce risk further.

Diversification is also directly proportional to your risk appetite. When you’re young, until your 40s, you would be inherently willing to take more risks. Hence, your portfolio can have as high as 70% equity. However, as you age and security takes priority, debt and mutual funds should dominate your portfolio.

Pay Yourself First

One effective strategy for ensuring consistent retirement savings is to automate the process. By setting up automatic contributions to a retirement account, you can eliminate the need for discipline and willpower to save consistently. This approach is known as the “pay yourself first” method and can be a powerful way to prioritize retirement savings.

Many employers offer automatic enrollment in retirement savings plans, such as 401(k) or 403(b) accounts. These employer-sponsored retirement savings plans allow employees to save and invest a portion of their paychecks before taxes are released.  Besides offering tax advantages, 401(k) and 403(b) can help grow your retirement savings over time. 

Another significant benefit of employer-sponsored retirement plans is the potential for employer-matching contributions. Many employers offer to match employee contributions up to a certain percentage or amount. You can earn “free money” for your retirement savings by contributing enough to receive the full employer match. 

For instance, you earn $50,000 annually, and your employer offers a 401(k) plan with a matching contribution of 100% up to 5% of your salary. In this scenario, you would be eligible for a maximum employer match of $2,500 per year (5% of $50,000). 

Besides leveraging 401(k) or 403(b) accounts, you can set up automatic transfers from your bank accounts to individual retirement accounts (IRAs) or other investment accounts.

Delay Social Security Benefits

Although it may be tempting to start collecting Social Security benefits as soon as one becomes eligible, waiting to claim can result in higher monthly benefits. For every year you delay claiming Social Security benefits beyond your full retirement age (which ranges from 65 to 67, depending on the year of birth), your benefits will increase by approximately 8% per year up to age 70.

By waiting to claim Social Security benefits, you can maximize your monthly benefits, which can provide a more substantial source of income during retirement. However, when deciding when to claim Social Security benefits, it is essential to consider personal circumstances, such as health and financial needs.

While Social Security can provide a foundation for retirement income, it is generally insufficient to cover an individual’s retirement expenses. The average Social Security retirement benefit in February 2023 was $1,782 per month. It is crucial to have additional sources of retirement income, such as personal savings and investments, to ensure a comfortable retirement.

Develop a Retirement Budget

Creating a realistic retirement budget is essential in preparing for a comfortable retirement. By estimating…