Rational Retirement: 3 Financial Planning Strategies For Lasting Wealth
One of the biggest concerns that American policymakers express is a worry that many people will not be adequately prepared for retirement. Where workers who retired decades ago could expect a company pension, today’s workers have 401k plans.
The old pensions grew without any effort on the part of employees. Today, employees have to take an active role in planning for retirement. Here are three financial planning strategies for lasting wealth.
Start Early
One of the best ways to build wealth is to start saving earlier, rather than later. This is because of the power of compound interest. Money that gets invested, be it in the stock market or bonds, will earn interest or dividends.
This income, if reinvested, can also start to earn interest. Over time, the interest payments alone could exceed the initial investment because of the compounding nature of interest. It’s for good reason that the power of compound interest has been called the eighth wonder of the world.
Steady savings, continued for a number of years, can really start to add up to a substantial nest egg over time.
Avoid Being Too Conservative
One of the major problems that can arise, even for people who save a nice sum of money each month, is the loss of purchasing power on savings. Certificates of deposit pay interest.
However, this interest has been below the level of inflation for the past few years. While the nominal wealth of those who invest with CDs may have gone up, their purchasing power that this nominal wealth would buy would have actually gone down over this time.
Therefore, investing some money in conservative stocks and bonds that return more than the rate of inflation will be more likely to build wealth over time.
Consult A Professional
Few people have the time that’s necessary to become an investing genius like Warren Buffett. This is where the knowledge that a professional, like those at Harwood Financial Group, can bring to the table can come in quite handy.
There are tax considerations that can make a big impact on the building of wealth. Financial professionals can recommend strategies that can allow investors to keep more of their money over time.
When it comes to building real wealth, it takes time. This makes it imperative to start saving for retirement as early as possible. The earlier a person starts, the more quickly the power of compound interest can start to take effect. It’s also important to leave any money that gets saved invested for as long as possible. This allows for the money to grow even more.
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Category: Financial Planning
