Knowing when to start planning for retirement is relatively simple: as soon as possible. However, there are some nuances and things you should consider to know at what stage you need to recognize different keys about this planning.
Why think about retirement as soon as possible
The time horizon of retirement seems a long way off for a person just entering the labor market. However, the potential of retirement planning has to do precisely with the long distance.
It is necessary to think that it is essential to make the most of retirement savings to understand the importance of compound interest. Compound interest is a formula that allows us to obtain benefits from the capital we contribute and the interest it generates. That, in the long term, causes the so-called interest snowball effect. It is through this effect that contributed capital grows exponentially.
Logically, the longer the period of time, the better to obtain this benefit. That is why it is always recommended to start saving for retirement in the long term: even when you are just entering the labor market.
It is interesting, on this reflection, to keep in mind that if you have more years to contribute money to your planned retirement, you can also control the amount of money you allocate for this purpose much better. Think that if you try to consolidate in 10 years a significant amount of remunerated savings, you will have to periodically contribute much more money than if you try to accumulate this amount in 40 years. In the latter case, not only does compound interest work its magic, but also your contributions are smaller because you spread them over a longer period.
Market signals for retirement planning
Another important aspect is to pay attention to the signals the markets offer to plan our retirement. There are times when the markets will tell us whether we need to put more or less pressure on certain investments or financial products.
These are some of the keys you should always consider understanding when and how to apply your financial efforts for retirement.
Rebalance your portfolio
It is very important to pay attention to the market situation. For example, asset rebalancing is essential in a bear market like the current one.
Thanks to a rebalance, you can correctly allocate the relationship between the different investing methods in your portfolio.
For example, in a bear market, you may want to expose less of your investment to volatile assets and allocate more investments to safer or more stable ones.
That also does not mean that you become overly conservative. Remember that the greater the distance to retirement, the greater the levels of risk we can take. Whereas, the closer we get to retirement, the more effort we must make to consolidate what we have gained.
Increase your liquidity
Liquidity is important. Many times we sacrifice liquidity in favor of stronger savings. That is not always correct.
Many analysts are in favor of maintaining a high amount of liquidity that can even exceed three years of income. This liquidity can be kept in different products, such as short-term bonds. In short, it is a matter of maintaining easily convertible products to cash.
This key to our liquidity possibilities is one of the most important to consider when planning retirement—the greater the liquidity, the greater the investment options.
Not wanting to be an investment guru
That is a common mistake. For many people, the ease of investment access makes it seem simple to try to predict and beat the markets. That is not the case at all.
It is essential to understand where we stand concerning the markets. Which products are the ones we know the most and with which we feel the best? It is also very important to trust the intermediary agents with whom we operate.
Unless you are an investment specialist, one of the keys to making you think about retirement planning is to understand that professional environments can help you. Detecting them and collaborating with them is essential.
Understand that money must work for you
That would be the last key that we consider fundamental when assessing when to start planning for retirement.
Curiously, although it may seem simple, it is not. Savings and investments are often not understood as a mechanism in which money works for us. In some cases, it is visualized in a much more distant way from reality as if they were gambling or betting models. That can in no way be the case.
When you understand the importance of long-term investments, you also understand that money must work for you. That is to say, you choose the best conditions for your capital, the best products, and the best intermediaries. All this is done with your comfort and future in mind.