Barely a week goes by without some discussion in the press about super and retirement savings. It is clear that many people are appallingly under prepared for retirement. This is despite the fact that the time spent in retirement is getting longer thanks to increasing life expectancies.

There have also been recent discussions on the appropriateness of super gearing, and whether younger people should be able to use their super for a home deposit.

These are all interesting conversations, but they neglect one simple fact – that early and regular savings will make all the difference for retirement. Although not a renowned investor, Albert Einstein purportedly demonstrated his advanced understanding of mathematics (and finance) with the following quotes;

“Compound interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t…pays it.”

“Compound interest is the most powerful force in the Universe”

Whether or not Einstein actually said these things is debateable. However, these are sentiments that many successful investors have long understood to be true. That is, even small initial investments, left to compound over time, can grow into significant amounts.

Let’s assume a 35 year old starts investing by putting $250 per month into an investment that earns 7.5% pa. By the time they reach 65, they will have amassed $336,861.

In contrast, for a 55 year old to obtain the same outcome by 65, they would need to save $1,893 per month.
The early starter has saved $90,000, and earned $246,861 from investment returns. The latecomer has only earned $109,701 and has had to find savings of $227,160.

And, as Einstein (allegedly) reminded us, the reverse works for debt. Even small additional regular payments save a lot in interest and knock years off the loan term.

It is the power of compounding returns that makes proposals, such as using super savings to fund house purchases, fraught with danger. By reducing their superannuation early in life to buy a house, young savers will miss out on many years of compound returns. This could have disastrous consequences on their final retirement savings.

So it appears that your best friend in accumulating wealth is not investment returns at all, but time. Given that time is limited, those looking to build wealth cannot afford to waste any of it. Perhaps this is where the saying “Time is money” comes from.

If you, or anyone you know, has not started climbing the retirement mountain, it is important that they start the journey now. The easiest first step? Speak with an Elston adviser.