Why You Should Start Saving for Retirement Now


Since the start of this century stock market returns have been less than stellar. The S&P 500, which is a proxy for stock market performance declined by 37% from 2000-2002. In addition, in 2006 it is only down -.5% through June 23, 2006. That is discouraging consider most stock market averages rose at least 20% annually between 1995 and 1999. But it is important to have a savings plan and stick with it in good times and bad. Historically, the capital markets (stocks, bonds, real estate and commodities) rise more than they fall. Those who stay the course often make money in the long run. You can miss out on opportunities if you stop investing.

Here are more reasons you should enter—or stay in—the game:

Increase Your Net Worth

Your assets minus your liabilities equal your net worth. When you buy stocks, bonds and real estate, you are investing in assets. When they rise in value, your net worth goes up too. Investing in capital markets can feel like a gamble, but historically the stock market returns average 10% each year, so the odds of making money over time are good.

Free Money

Many companies offer retirement savings vehicles such as 401(k) or 403(b) plans. These options allow you to save for retirement and receive a tax deduction (contributions up to $15,000 for 2006 are tax deductible) In addition, many employers will match a portion of your investment. So why pass up free money? Even if you can only afford to put aside 1% of your paycheck, it makes sense to get started. Over time, as you receive raises you can designate a higher portion of your income to increase your retirement savings.

Variety of Investment Options

Some people think the only option for investing is stocks, but there are other vehicles available. There are bonds, for instance, which represent loans to government or corporate entities. Bonds typically pay investors interest twice a year. There are also commodities and real estate, which should be included in a retirement portfolio to protect against inflation. Commodities include raw materials like oil, gold, grains and meats. When inflation rises, our purchasing power is reduced and this causes stocks and bonds to fall. But commodities and real estate prices increase in these scenarios. Another option for the busy investor who doesn’t have the time to pick individual stocks or bond is mutual funds. There are thousands to choose from.

Importance of Starting Early

A 20-year-old only needs to sock away $135 per month or $4.50 per day to become a millionaire by 65. Waiting until age 40 requires $892 per month or almost $30 per day to reach the same goal. The earlier you start investing, the less money you need to reach your goal. That’s why it’s important to start now.

You don’t need a big investment to get going. Firms such as Sharebuilder.com don’t even require a minimum balance to open an account. You can start with whatever you can spare. If investing scares you, hire a financial planner who can help you construct a portfolio tailored to your needs. Ask family and friends for referrals. Be sure to ask how the planner is compensated. Some are paid commissions for selling their company’s products even if they’re not the best fit for you.

You can also start an investment club. Get a group of friends or family members and pool your money together to buy stocks or mutual funds. It’s a fun way to invest. The National Association of Investor Corporation (www.betterinvesting.org) has all the information you need to get your investment club in gear. The Internet also has resources (Yahoo Finance - http://finance.yahoo.com/ and MSN Money - http://moneycentral.msn.com) to help the every-day person learn more about investing. With all of the resources available, you have every reason to start investing today.


Patrick Lyons is author of Map Your Financial Future: Starting the Right Path in Your Teens and Twenties. Order your autographed copy at www.PatrickALyons.com. He is also President of Lyons Den Capital, LLC, a financial planning firm. Visit www.LyonsDenCapital.com for more details on his services.