Make Time Your Investing Ally

Guest blogger Jim McNair leads the Lawton, OK, office of First Command Financial Services. Jim joined First Command as a financial advisor in December 2011 after retiring as a lieutenant colonel from a 26-year career in the United States Army. There he served as a fire support officer in the 75th Ranger Regiment and in four tactical divisions, including combat duty in Iraq and staff duty at the Pentagon and in NATO. Connect with Jim’s office on Facebook:

How much money will you need in retirement?

Unless you’re able to predict the future, you probably can’t answer that question with absolute certainty. There are simply too many variables involved.  You don’t know, for instance, how much the cost of living will increase between now and the time you retire, how long you’ll live or even, if you’re like most people, what you want to do when you retire. And there’s a big difference in the cost of traveling the world in luxury and going fishing!

But don’t let all of that uncertainty paralyze you when it comes to planning your financial future. The bottom line is that, no matter what kind of retirement you envision for yourself, what happens with inflation, the stock market and health care costs between now and then, you’re going to need to accumulate a nest egg that can help replace your income.

What’s the best way to go about accumulating that nest egg? We recommend a very simple approach sometimes referred to as “paying yourself first.” It’s based on the idea that a part of everything you earn is yours to keep, and the best way for service members to get started is by setting up an automatic investment in the Thrift Savings Plan (TSP). The TSP allows you to invest pre-tax dollars in an array of very-low-cost investment options.

So if you’re not already participating – and 56 percent of all service members aren’t, according to the Federal Retirement Thrift Investment Board – you need to get started. Because, as the example below shows, time is arguably the most important factor in determining your ultimate investment outcome.

*Assumes an 8% annual rate of return with annual compounding. This is a hypothetical example used for illustrative purposes only.  It is not representative of any specific investment or combination of investments. Investment return and principal values will fluctuate over time so that an investment, when redeemed, may be worth more or less than its original cost.

Here’s the scenario: Two brothers, Will and Bill, take two very different paths to saving and investing for retirement. Will gets started early, beginning to invest $250 every month at age 22. Unfortunately, he stops investing after only 10 years and never gets around to restarting. Bill, on the other hand, postpones investing for his future until he’s 32. But once he starts, he never stops, continuing to put away the same $250 every month until he retires at 65.

As you can see, Will only invests a total of $30,000. Bill socks away $102,000. So how is it possible that Will actually ends up with more money – $124,189 more – in the end? Can starting 10 years earlier really make that much difference? The numbers don’t lie. Time is a powerful investing ally.

So if you’re not already investing as much as you can afford to invest in the TSP, hopefully this will convince you to begin doing so – sooner rather than later!

This article has appeared previously in First Command publications.


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