OPINION: Save now to better your retirement


By Stephen McFarlane

Time is money. So said Benjamin Franklin, in 1748, in an essay titled Advice to a Young Tradesman

And while he was not alluding to retirement savings, his quote is directly applicable. Visually, I was reminded of this in contemplating a tape measure this week.

Take the tape measure in both hands. Your left hand will be at zero and put your right hand, let’s say, at 90cm. This, we will assume, is the span of your life.

Move your right hand back to 65. The age at which you will probably retire, give or take. And very likely you will cease to earn a wage from that point. So, nearly 40% of the tape is now unavailable for saving. That percentage made an impression on me. What you have saved to that point plus national superannuation is what you’ve got to fund the remainder of your lifetime.

Now move your left hand to the number which is your age right now. From a retirement savings perspective a good start is if there is still a gap between your hands. But it will be clear that the gap is reducing. And will continue to do so. What you have left is the visual tape equivalent of the time you have left to save for what is, hopefully, a lengthy retirement.

If time is money, let’s put some numbers around that. Assume you are aged 30 and save $200 per month and that a consistent return of 4.5% is earned. At age 65 you will have accumulated $203,000. But if you had started at age 20 your result would have been considerably higher at $349,000. Conversely, wait another 10 years to age 40 to begin and your outcome reduces to $110,000.

Time, compounding and the consistency of continuing to invest across the years carries with it significant benefit. Add into that owning a mix of investments significantly oriented to growth, such as shares, when you are younger (gradually reducing as you close in on retirement) and you have given yourself the best possible chance of a retirement in which you have choice and opportunity.

If time is the irreplaceable asset, then procrastination is the enemy. Yes, we all have other commitments. Mortgages, children, simply enjoying life as we go along. But procrastination can be expensive. Saving, at even a relatively low level, will have longer term benefit.

While there is still some tape showing between your hands, time to take action.

  • Stephen McFarlane is an adviser with NZ Funds Private Wealth in Timaru. The opinions expressed in this column are his own. A copy of Stephen’s disclosure statements are available on request, free of charge.

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