Is it too late for a 40-year old person to start planning for Retirement? The answer to this will depend much on when you wish to start your retirement.
For example, if you plan to retire at the age of 60 and beyond, you are still in a pretty good situation to plan for it because you got around 20 years to work hard towards it, therefore the answer is that it’s not too late.
But if you plan to retire at the age of 45 or 50 (lucky you!), you need to assess your current financial situation. Ask yourself whether you have enough financial means to sustain a desired retirement lifestyle to last until the date you pass on which means an average of 30 years (also depends on the average mortality rate in your country).
If you do not have the means, then it’s really late to plan for your retirement and the suggestions are to extend your retirement age or work extremely hard to achieve it.
What are the factors that you need to know if it’s too late to plan for retirement?
1. Know Your Desired Retirement Age
This is the Golden Number that you need to know. This is because the difference between this number with your current age will determine the amount of time you have left to plan with what you currently have. As the saying goes, you need time to work its magic (= make your money work harder for you)
2. Know Your Desired Retirement Lifestyle
To know your Desired Retirement Lifestyle you will need to attach a monetary sum to it. What does it mean? For example, based on my current lifestyle, I am spending an average of $3000 every month and I get to enjoy everything that I want. And so, for my retirement lifestyle, I may not need that much but still I will prefer to have an average of $2000 to spend each month. This forms the desired lifestyle that you wish to have.
3. How Long You Wish To Have Your Desired Lifestyle
All good things will definitely come to an end, and that’s why you need to know how long you wish to enjoy your desired retirement lifestyle. You can base it on your average lifespan of your family or base it on the mortality rate in your country. For example, in some countries, the male may get to live up to the average age of 80 and the female may live up to an average age of 88. And if you are a male who desire to retire at the age of 60, you will have a 20 years of desired lifestyle to enjoy.
4. Get The Full Figure Of The Amount You Need For Retirement
By asking and answering the above three figures, you will get a value on the amount that you need to have before you officially retire. For example, if someone plans to retire at age 60 and to enjoy $2000 every month for the next 20 years, he will need to have 20 x $2000 x 12 = $480,000 in his pocket at the age of 60. And if he is at the age of 40, he will have 20 years to work towards this figure.
5. Know The Financial Instruments That Will Work Your Money Harder
Once you have the figure that you want to work towards to, the next factor to determine if it’s too late to plan will be the Financial Instruments that’s available to you and your personal preference to work with them. Instruments like Savings / Deposits Account, Stocks, Shares, Equities, Bonds, Property, Commodities, Forex are popular ways that many people are using to help them grow their money.
And the main principle behind these instruments is the Interest Rate. For example, if you are able to get something that can safely generate a consistent 10% for you each year. You will just need to set aside an average $650 every month into that instrument for the next 20 years to get $480,000. Likewise, if you have an instrument that generates a consistent 1% for you each year, you will have to set aside an average of $1850 every month for the next 20 years.
The amount you will need to set aside each month will actually decrease if you have a longer period (i.e. more than 20 years).
6. Ability To Set Aside The Amount Each Month
This brings us to the last factor – your ability to set aside the amount each month into that desired instrument(s). If you can do so, you are well planned for retirement. If you can’t, like mentioned, extend your retirement age, work harder, or look for means to have more income or have a less desirable retirement lifestyle.