Today's topic is rather "hot" to pu it "mildly"...! Some of us leanerned the hard way, but this is a perfect platform to learn rather effectively, because that would certainly save you your future.
I was speaking to a friend who is in the field of personal financial advisory, a very smart young woman who has contributed a lot in these industry. You can check her work on www.abacusformoney.com, and these is where the topic became alive and I felt I should share it with my fellow bloggers, because this is a rather realistic and serious issue which our young people should start taking seriously.
I feel it is a neglected topic and carries a lot of weight, because most of these age group is inconsiderate when it comes to retiring well, their believe is that "I'm still young and there is still a lot of time to catch up..." but statistically speaking, if one can carry on with the same tone for more than 5 years with only a compulsory pension contribution, an opportunity cost of 5 years would have been incurred and five years is a lot looking at the penalty that one gets if you were to retire 5 years earlier than the normal retirement age.
When is it the right time to start saving for retirement is "THEE" question? Is there anything like too early, because there is certainly something called too late...!
More and more people should be conscious about their retirement savings, for I know the deduction from a payslip is just an "UN-avoidable expense" to put it mildly. That's what I used to believe, not realising that this forced saving can actually save me from the humiliation of living from hand to mouth and depending on governmental grant, and therefore costing millions from my fellow citizens (Tax) to support my retired years. At that time there wouldn't be time to save or invest. It would be consumption time!
An average person's accumulation phase starts at early 20's and the earnings potential graph has an upward slope until around mid 40's, that gives you a give or take of around 22 years of good earnings potential. The age vs earnings potential curve is an upward sloping one, which means earnings do rise up with age but at a decreasing rate. This is because as a person leaves college, accumulates experience and more relevant education, his earning potential also rises. But as a person ages, his commitment to personal growth (Education/ work skills) deteriorates with more family responsibilities and other commitments, the energy levels and the hunger to succeed also contributes to this.
So, a 5 year non-contribution, compounded, and the fact that at an early age on average a person has a very high risk appetite, which would mean his/her portfolio could be made of High Risk/ High Return Portfolios made of Equities and some derivative instruments.
More studies into this I believe could prove a very high potential loss of retirement capital! I'm going to research more on it, and would like to hear your take as well.
Posts
