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Why You Need Financial Planning in Your 20’s

Financial Advisors typically work with clients that are either in retirement, or very close to it – typically within 5 years, or those that are very wealthy regardless of age. Why should you consider working with a Financial Advisor much earlier in life than most?

In adult life there are 2 things that everyone must deal with: health and finances. Very similar to one’s health, if you neglect your finances in your 20’s, 30’s, and 40’s, you will likely pay the consequences in your 50’s, 60’s, and beyond; this is one trend I have seen in previous jobs working with a wide variety of clients. Most people fail to create and implement a successful financial plan when they are young; therefore, fail to reach a point where they are on track to achieve their financial goals when they are nearing retirement.

One of the primary reasons it is so difficult to wait until you are older to focus on your finances is the action you take when you are young have a multiplier effect on your finances when you are older.

This can be easily proven by looking at a simple example: If James plans to retire at age 65 and begins putting $500 a month away at age 25 achieving a 7% annual return (roughly the long-term average of the S&P 500), he would end up with approximately $1,200,000 in funds for retirement. However, if James waited another 10 years to begin saving for retirement until he is 35 years old and invests the same $500 a month at 7%, now that he has a higher paying job, his account value would be less than half at approximately $570,000 versus starting just 10 years earlier.

But what if James increased the amount he can contribute once he reaches age 35? This is an option, however, to achieve the same $1,200,000 account value he would need to increase his monthly contribution to over $1,000 a month, more than double what his contribution amount would have been starting just 10 years earlier. And it only gets worse from there:

By simply waiting to start saving for retirement, it becomes more difficult to achieve the same results and is considerably more expensive. When starting at age 25, the percentage of the ending account value at 65 consists of approximately 80% growth, and only about 20% from the monthly contributions made by James; this truly shows the power of compounding, which is why Albert Einstein called compound interest the Eighth Wonder of the world.

Experience the Eighth Wonder of the world for yourself and schedule a meeting with a financial advisor today!


About the author: Nathan V. Bremer, AAMS® is a financial advisor, and Founder of Eighth Wonder Investments, a financial planning firm focused on helping working age individuals achieve their financial goals.

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